UNITED STATES
SECURITIES  AND  EXCHANGE  COMMISSION
Washington, D.C.  20549

FORM 10-Q

QUARTERLY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)
OF  THE  SECURITIES  EXCHANGE  ACT  OF  1934

For the quarterly period ended September 30, 2018March 31, 2019

Commission File Number: 1-9700

THE  CHARLES  SCHWAB  CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
94-3025021
(I.R.S. Employer Identification No.)

211 Main Street, San Francisco, CA  94105
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  (415) 667-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☐
Emerging growth company ☐ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock – $.01 par value per shareSCHWNew York Stock Exchange
Depositary Shares, each representing a 1/40th ownership interest in
  a share of 6.00% Non-Cumulative Preferred Stock, Series C
SCHW PrCNew York Stock Exchange 
Depositary Shares, each representing a 1/40th ownership interest in
  a share of 5.95% Non-Cumulative Preferred Stock, Series D
SCHW PrDNew York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
1,350,452,8011,335,009,396 shares of $.01 par value Common Stock Outstanding on October 31, 2018April 30, 2019


THE CHARLES SCHWAB CORPORATION

Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2018March 31, 2019



 Index

Part I - Financial Information
  
   
     
 Item 1.
Condensed Consolidated Financial Statements (Unaudited):
  
     
  
Statements of Income
 
1715
  
Statements of Comprehensive Income
 
1816
  
Balance Sheets
 
1917
  
Statements of Stockholders’ Equity
 
2018
  
Statements of Cash Flows
 21-2219-20
  
Notes
 23-5421-49
     
 Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 1-151-13
     
 Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
1614
     
 Item 4.
Controls and Procedures
 
5550
     
Part II - Other Information
  
     
 Item 1.
Legal Proceedings
 
5650
     
 Item 1A.
Risk Factors
 
5650
     
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
5650
     
 Item 3.
Defaults Upon Senior Securities
 
5652
     
 Item 4.
Mine Safety Disclosures
 
5652
     
 Item 5.
Other Information
 
5652
     
 Item 6.
Exhibits
 
5753
     
Signature
 
5854
   






Part I – FINANCIAL INFORMATION

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)



Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged,and engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
Charles Schwab Bank (CSB), a federal savings bank; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.

Schwab provides financial services to individuals and institutional clients through two segments – Investor Services and Advisor Services. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent registered investment advisors (RIAs), independent retirement advisors, and recordkeepers.
Schwab was founded on the belief that all Americans deserve access to a better investing experience. Although much has changed in the intervening years, our purpose remains clear – to champion every client’s goals with passion and integrity. Guided by this purpose and the aspirationour vision of creating the most trusted leader in investment services, management has adopted a strategy described as “Through Clients’ Eyes.”

This strategy emphasizes placing clients’ perspectives, needs, and desires at the forefront. Because investing plays a fundamental role in building financial security, we strive to deliver a better investing experience for our clients – individual investors and the people and institutions who serve them – by disrupting longstanding industry practices on their behalf and providing superior service. We also aim to offer a broad range of products and solutions to meet client needs with a focus on transparency, value, and trust. In addition, management works to couple Schwab’s scale and resources with ongoing expense discipline to keep costs low and ensure that products and solutions are affordable as well as responsive to client needs. In combination, these are the key elements of our “no trade-offs” approach to serving investors. We believe that following this strategy is the best way to maximize our market valuation and stockholder returns over time.

Management estimates that investable wealth in the United States (U.S.) (consisting of assets in defined contribution, retail wealth management and brokerage, and registered investment advisor channels, along with bank deposits) currently exceeds $45 trillion, which means the Company’s $3.56$3.59 trillion in client assets leaves substantial opportunity for growth. Our strategy is based on the principle that developing trusted relationships will translate into more assets from both new and existing clients, ultimately driving more revenue, and along with expense discipline and thoughtful capital management, will generate earnings growth and build long-term stockholder value.

This Management’s Discussion and Analysis should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (20172018 (2018 Form 10-K).

On our website, https://www.aboutschwab.com, we post the following filings after they are electronically filed with or furnished to the Securities and Exchange Commission (SEC): annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. In addition, the website also includes the Dodd-Frank stress test results, our regulatory capital disclosures based on Basel III, and our quarterly average liquidity coverage ratio. The SEC maintains a website at https://www.sec.gov that contains reports, proxy statements, and other information that we file electronically with the SEC.


THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)




FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified by words such as “believe,” “anticipate,” “expect,” “intend,” “plan,” “will,” “may,” “estimate,” “appear,” “could,” “would,” and other similar expressions. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances are forward-looking statements.
These forward-looking statements, which reflect management’s beliefs, objectives, and expectations as of the date hereof, are estimates based on the best judgment of Schwab’s senior management. These statements relate to, among other things:
Maximizing our market valuation and stockholder returns over time; our belief that developing trusted relationships will translate into more client assets which drives revenue and, along with expense discipline and thoughtful capital management, generates earnings growth and builds stockholder value (see Introduction in Part I, Item 2);
Ongoing investments to drive growthefficiency and efficiencyscale (see Overview);
Capital returns to stockholders (see Overview);
2019 capital expenditures in 2018 (see Results of Operations);
Consolidated balance sheet assets remaining above $250 billion (see Risk Management and Capital Management);
The expected impact of new accounting standards not yet adopted (see New Accounting Standards in Part I, Item 1, Financial Information – Notes to Condensed Consolidated Financial Statements (Item 1) – Note 2);
The likelihood of indemnification and guarantee payment obligations (see Commitments and Contingencies in Item 1 – Note 9)10); and
The impact of legal proceedings and regulatory matters (see Commitments and Contingencies in Item 1 – Note 910 and Legal Proceedings in Part II, Item 1).

Achievement of the expressed beliefs, objectives, and expectations described in these statements is subject to certain risks and uncertainties that could cause actual results to differ materially from the expressed beliefs, objectives, and expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of documents incorporated by reference, as of the date of those documents.

Important factors that may cause actual results to differ include, but are not limited to:
General market conditions, including the level of interest rates, equity valuations, and trading activity;
Our ability to attract and retain clients, develop trusted relationships, and grow client assets;
Client use of our advice solutions and other products and services;
The level of client assets, including cash balances;
Competitive pressure on pricing, including deposit rates;
Client sensitivity to interest rates;
Regulatory guidance;
Timing and amount of transfers of certain balances from sweep money market funds into bank sweep deposits;
Capital and liquidity needs and management;
Our ability to manage expenses;
Our ability to develop and launch new products, services, and capabilities, as well as implement infrastructure, in a timely and successful manner;
The timing of campus expansion work and technology projects;
The effect of adverse developments in litigation or regulatory matters and the extent of any related charges; and
Potential breaches of contractual terms for which we have indemnification and guarantee obligations.

Certain of these factors, as well as general risk factors affecting the Company, are discussed in greater detail in Part I – Item 1A – Risk Factors in the 20172018 Form 10-K.




THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


OVERVIEW
Management focuses on several client activity and financial metrics in evaluating Schwab’s financial position and operating performance. Results for the thirdfirst quarters of 2019 and first nine months of 2018 and 2017 are:
Three Months Ended September 30, Percent
Change		 Nine Months Ended September 30,Percent
Change		Three Months Ended March 31, Percent
Change
2018 2017  2018 20172019 2018 
Client Metrics               
Net new client assets (in billions) (1)
$53.5
 $51.6
 4% $78.6
 $155.0
(49)%$51.7
 $(18.8) N/M
Core net new client assets (in billions)$53.5
 $51.6
 4% $172.5
 $136.7
26%$51.7
 $65.6
 (21)%
Client assets (in billions, at quarter end)$3,563.7
 $3,181.2
 12%    
 $3,585.4
 $3,305.4
 8%
Average client assets (in billions)$3,508.1
 $3,107.8
 13% $3,420.2
 $2,986.3
15%$3,465.7
 $3,382.1
 2%
New brokerage accounts (in thousands)369
 336
 10% 1,196
 1,055
13%386
 443
 (13)%
Active brokerage accounts (in thousands, at quarter end)11,423
 10,565
 8%     11,787
 11,005
 7%
Assets receiving ongoing advisory services (in billions, at quarter end)$1,851.9
 $1,613.6
 15%     $1,871.2
 $1,717.6
 9%
Client cash as a percentage of client assets (at quarter end)10.3% 11.1%  
     
11.3% 11.0%  
Company Financial Metrics 
  
  
      
  
  
Total net revenues$2,579
 $2,165
 19% $7,463
 $6,376
17%$2,723
 $2,398
 14%
Total expenses excluding interest1,360
 1,220
 11% 4,111
 3,679
12%1,459
 1,396
 5%
Income before taxes on income1,219
 945
 29% 3,352
 2,697
24%1,264
 1,002
 26%
Taxes on income296
 327
 (9)% 780
 940
(17)%300
 219
 37%
Net income923
 618
 49% 2,572
 1,757
46%$964
 $783
 23%
Preferred stock dividends and other38
 43
 (12)% 128
 127
1%39
 37
 5%
Net income available to common stockholders$885
 $575
 54% $2,444
 $1,630
50%$925
 $746
 24%
Earnings per common share — diluted$.65
 $.42
 55% $1.79
 $1.21
48%$.69
 $.55
 25%
Net revenue growth from prior year19% 13%  
 17% 16% 14% 15%  
Pre-tax profit margin47.3% 43.6%  
 44.9% 42.3% 46.4% 41.8%  
Return on average common stockholders’ equity20% 15%  
 19% 15% 20% 18%  
Expenses excluding interest as a percentage of average client
assets (annualized)		0.15% 0.16%   0.16% 0.16% 0.17% 0.17%  
Consolidated Tier 1 Leverage Ratio (at quarter end)7.5% 7.7%       7.2% 7.5%  
(1) The first ninethree months ofended March 31, 2018 includes outflows of $93.9 billion from certain mutual fund clearing services clients. The first nine months of 2017 includes inflows of $18.3$84.4 billion from certain mutual fund clearing services clients.
N/M Not meaningful.

Net income grew 49% and 46% for the thirdfirst quarter and first nine months of 2018, respectively, compared to2019 grew $181 million, or 23%, from the same periodsperiod in 2017,2018, driven primarily by business momentum,growth in net interest revenue and disciplined expense management during a generally favorablemixed geopolitical and economic environment, and lower corporate income taxes.environment. Total net revenues rose 19% and 17% in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017,by $325 million, or 14%, primarily due to higheran increase of $418 million, or 33%, in net interest revenue resulting from improvement in our net interest margin following the Federal Reserve’s four rate hikes in 2018, as well as higher interest-earning assets stemming from the transfer of sweep money market funds to bank and broker-dealer sweep, and client cash allocations. Asset management and administration fees decreased $96 million, or 11%, mainly as a result of higher interest rates and largerlower money market fund revenue as we executed on sweep transfers. Trading revenue declined by 8% as client cash sweep balances. trading activity remained strong, but below the volume seen in the first quarter of 2018.

Total expenses excluding interest grew 11% and 12% during the third quarter and first nine months$63 million, or 5%, inclusive of 2018, respectively, compared to the same periods in 2017, reflecting hiring to support the Company’s expanding client base and ongoing investments for drivingin projects to further drive efficiency and scale. Our disciplined expense management helped produce a 900 basis point gap between year-over-year revenue and expense growth, and efficiency. Pre-tax income increased 29% and 24% in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017, delivering a 44.9%46.4% pre-tax profit margin for the first nine monthsquarter of 2018.

Taxes on income decreased 9% and 17% for the third quarter and first nine months of 2018, compared to the same periods in 2017, resulting in effective tax rates of 24.3% and 23.3% for the third quarter and first nine months of 2018, respectively. The reduction in taxes on income was due to the Tax Act of 2017, which lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018.2019.

During the third quarter of 2018, clientsClients opened 369,000386,000 new brokerage accounts helping to bringduring the first quarter of 2019, and the number of active brokerage accounts to 11.4totaled 11.8 million at September 30, 2018.March 31, 2019. Core net new assets gathered during the thirdfirst quarter of 20182019 were $53.5$51.7 billion, comparedrepresenting a 6% annualized growth rate, and total client assets grew 8% year-over-year to $51.6 billion for the same period a year ago. Client engagement remained strong during the thirdreach $3.59 trillion at quarter of 2018, with daily average revenue trades rising 22% from the same period in 2017.end.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


During the thirdfirst quarter of 2018,2019, we effectively managed ourcontinued to emphasize effective balance sheet to support both growth and solid financial performance. The consolidated balance sheet reached $272 billion of assets at September 30, 2018, a $10 billion quarterly increase, largely driven by bank sweep transfers and client activity. We transferred balances totaling $23management, transferring $11.6 billion from sweep money market funds to bank sweep in the quarter, bringing our 2018 transfers to $68 billion and leaving $33 billionbroker-dealer sweep. In April 2019, we completed all remaining in sweep money market funds at September 30, 2018.planned transfers. In July 2018, the Board of Directors declaredJanuary 2019, we announced a 30%31% increase in the quarterly cashour dividend to $.13$0.17 per common share.share, and a $4 billion stock repurchase authorization, which we expect to access in coming quarters to return excess capital to stockholders. We finished the first quarter of 2019 with a Tier 1 Leverage Ratio of 7.5%7.2%, and we lifted ourachieved a 20% return on equity to 20% and 19% for the third quarter and first nine months of 2018, respectively, compared to 15% for the same periods in 2017.consecutive quarter.

Subsequent Events

On October 25, 2018, CSC’s Board of Directors terminated the existing two share repurchase authorizations and replaced them with a new authorization to repurchase up to a total of $1.0 billion of common stock.

On October 31, 2018, CSC issued $500 million aggregate principal amount of Senior Notes that mature in 2024 and $600 million aggregate principal amount of Senior Notes that mature in 2029 under its universal shelf registration statement on file with the SEC. The Senior Notes due 2024 have a fixed interest rate of 3.550% with interest payable semi-annually. The Senior Notes due 2029 have a fixed interest rate of 4.000% with interest payable semi-annually.
Current Regulatory Environment andOther Developments

On October 31, 2018, the Board of Governors of the Federal Reserve System (Federal Reserve) issued a notice of proposed rulemaking and the Federal Reserve, the Office of the Comptroller of Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly issued another notice of proposed rulemaking. The two proposals would establish a revised framework for applying enhanced prudential standards to large U.S. banking organizations, including savings and loan holding companies such as CSC, with four categories of standards that reflect the risks of banking organizations in each group. CSC would be in Category III based on having $250 billion – $700 billion in total assets. The comment period for both proposed rules ends on January 22, 2019 and we are currently evaluating the impact of the proposed rules.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


RESULTS OF OPERATIONS

Total Net Revenues

The following tables presenttable presents a comparison of revenue by category:
   2018 2017   2019 2018
Three Months Ended September 30, Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Three Months Ended March 31, Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Net interest revenue                    
Interest revenue 49% $1,755
 68% $1,176
 54% 41% $1,998
 73% $1,421
 59%
Interest expense 143% (228) (9)% (94) (4)% 101% (317) (11)% (158) (6)%
Net interest revenue 41% 1,527
 59% 1,082
 50% 33% 1,681
 62% 1,263
 53%
Asset management and administration fees                    
Mutual funds and ETF service fees (16)% 435
 17% 519
 24%
Mutual funds, ETFs, and collective trust funds (CTFs) (1)
 (18)% 414
 16% 504
 21%
Advice solutions 11% 294
 11% 265
 12% (1)% 278
 10% 282
 12%
Other(1) 4% 80
 3% 77
 4% (3)% 63
 2% 65
 3%
Asset management and administration fees (6)% 809
 31% 861
 40% (11)% 755
 28% 851
 36%
Trading revenue                    
Commissions 14% 155
 6% 136
 6% (14)% 163
 6% 189
 7%
Principal transactions 40% 21
 1% 15
 1% 83% 22
 1% 12
 1%
Trading revenue 17% 176
 7% 151
 7% (8)% 185
 7% 201
 8%
Other (6)% 67
 3% 71
 3% 23% 102
 3% 83
 3%
Total net revenues 19% $2,579
 100% $2,165
 100% 14% $2,723
 100% $2,398
 100%
(1) Beginning in the first quarter of 2019, a change was made to move CTFs from other asset management and administration fees. Prior periods have been recast to reflect this change.
    2018 2017
Nine Months Ended September 30, Percent
Change		 Amount % of
Total Net
Revenues		 Amount % of
Total Net
Revenues
Net interest revenue          
Interest revenue 42% $4,766
 64% $3,358
 52%
Interest expense 155% (569) (8)% (223) (3)%
Net interest revenue 34% 4,197
 56% 3,135
 49%
Asset management and administration fees  
  
  
  
  
Mutual funds and ETF service fees (10)% 1,386
 19% 1,538
 24%
Advice solutions 12% 859
 11% 765
 12%
Other 1% 229
 3% 226
 4%
Asset management and administration fees (2)% 2,474
 33% 2,529
 40%
Trading revenue          
Commissions 10% 501
 7% 456
 7%
Principal transactions 27% 56
 1% 44
 1%
Trading revenue 11% 557
 8% 500
 8%
Other 11% 235
 3% 212
 3%
Total net revenues 17% $7,463
 100% $6,376
 100%





THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Net Interest Revenue

The following tables presenttable presents net interest revenue information corresponding to interest-earning assets and funding sources on the condensed consolidated balance sheets:
  2018 2017
Three Months Ended September 30, Average Balance Interest Revenue/ Expense Average Yield/ Rate Average Balance Interest Revenue/ Expense Average Yield/ Rate
Interest-earning assets            
Cash and cash equivalents $18,623
 $94
 1.98% $10,498
 $33
 1.25%
Cash and investments segregated 10,253
 51
 1.94% 17,355
 44
 1.01%
Broker-related receivables 307
 1
 1.94% 459
 1
 0.96%
Receivables from brokerage clients 20,224
 217
 4.19% 16,498
 151
 3.63%
Available for sale securities (1)
 55,283
 328
 2.34% 45,906
 187
 1.62%
Held to maturity securities 137,065
 887
 2.57% 107,557
 606
 2.24%
Bank loans 16,579
 142
 3.43% 16,058
 122
 3.01%
Total interest-earning assets 258,334
 1,720
 2.63% 214,331
 1,144
 2.12%
Other interest revenue   35
     32
  
Total interest-earning assets $258,334
 $1,755
 2.69% $214,331
 $1,176
 2.18%
Funding sources            
Bank deposits $208,666
 $158
 0.30% $163,039
 $49
 0.12%
Payables to brokerage clients 20,595
 16
 0.31% 24,833
 6
 0.10%
Short-term borrowings —
 —
 —
 1,695
 6
 1.40%
Long-term debt 5,790
 51
 3.52% 3,436
 30
 3.46%
Total interest-bearing liabilities 235,051
 225
 0.38% 193,003
 91
 0.19%
Non-interest-bearing funding sources 23,283
     21,328
    
Other interest expense   3
     3
  
Total funding sources $258,334
 $228
 0.36% $214,331
 $94
 0.18%
Net interest revenue   $1,527
 2.33%   $1,082
 2.00%
 2018 2017 2019 2018
Nine Months Ended September 30, Average Balance Interest Revenue/ Expense Average Yield/ Rate Average Balance Interest Revenue/ Expense Average Yield/ Rate
Three Months Ended March 31, Average Balance Interest Revenue/ Expense Average Yield/ Rate Average Balance Interest Revenue/ Expense Average Yield/ Rate
Interest-earning assets                        
Cash and cash equivalents $16,164
 $217
 1.78% $9,375
 $72
 1.03% $24,983
 $151
 2.42% $17,084
 $66
 1.53%
Cash and investments segregated 12,002
 149
 1.64% 19,609
 120
 0.82% 13,533
 83
 2.44% 13,969
 48
 1.37%
Broker-related receivables 324
 4
 1.62% 428
 2
 0.74% 257
 2
 2.75% 287
 1
 1.32%
Receivables from brokerage clients 19,629
 600
 4.03% 15,861
 415
 3.50% 18,972
 214
 4.52% 18,872
 179
 3.79%
Available for sale securities (1)
 52,797
 859
 2.16% 55,070
 615
 1.49% 66,853
 451
 2.70% 50,371
 240
 1.91%
Held to maturity securities 129,490
 2,420
 2.48% 99,523
 1,691
 2.27% 132,427
 916
 2.77% 121,412
 721
 2.38%
Bank loans 16,522
 410
 3.31% 15,764
 347
 2.94% 16,578
 149
 3.61% 16,456
 130
 3.19%
Total interest-earning assets 246,928
 4,659
 2.50% 215,630
 3,262
 2.02% 273,603
 1,966
 2.88% 238,451
 1,385
 2.33%
Other interest revenue   107
     96
     32
     36
  
Total interest-earning assets $246,928
 $4,766
 2.56% $215,630
 $3,358
 2.08% $273,603
 $1,998
 2.92% $238,451
 $1,421
 2.39%
Funding sources                        
Bank deposits $193,010
 $339
 0.23% $163,475
 $98
 0.08% $219,987
 $226
 0.42% $176,988
 $64
 0.15%
Payables to brokerage clients 21,591
 37
 0.23% 26,198
 11
 0.06% 22,184
 23
 0.43% 22,469
 7
 0.14%
Short-term borrowings(2) 4,488
 54
 1.59% 1,475
 11
 1.00% 30
 —
 2.48% 12,170
 47
 1.55%
Long-term debt 5,053
 131
 3.46% 3,349
 89
 3.55% 6,845
 62
 3.61% 4,392
 37
 3.37%
Total interest-bearing liabilities 224,142
 561
 0.33% 194,497
 209
 0.14% 249,046
 311
 0.51% 216,019
 155
 0.29%
Non-interest-bearing funding sources 22,786
     21,133
     24,557
     22,432
    
Other interest expense   8
     14
     6
     3
  
Total funding sources $246,928
 $569
 0.31% $215,630
 $223
 0.14% $273,603
 $317
 0.46% $238,451
 $158
 0.27%
Net interest revenue   $4,197
 2.25%   $3,135
 1.94%   $1,681
 2.46%   $1,263
 2.12%
(1) Amounts have been calculated based on amortized cost.


THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts(2) Interest expense was less than $500,000 in Millions, Except Ratios, or as Noted)

the three months ended March 31, 2019.

Net interest revenue increased $445$418 million, or 41%, and $1.1 billion, or 34%33%, in the thirdfirst quarter and first nine months of 2018, respectively,2019 compared to the same periodsperiod in 2017,2018, primarily due to higher interest rates and growth in interest-earning assets.
Our net interest margin improved to 2.33% and 2.25%2.46% during the thirdfirst quarter and first nine months of 2018, respectively,2019, up from 2.00% and 1.94% during the same periods in 2017, primarily2.12% a year earlier, as a result of the Federal Reserve’s 2017 and March, June, and September 2018 interest rate increases, partially offset by higher interest rates paid on bank deposits and other interest-bearing liabilities.
During the third quarter and the first nine months of 2018, averageAverage interest earning assets grew 21% andwere 15%, respectively, higher during the first quarter of 2019 compared to the same periodsperiod in 2017. These increases reflect2018. This increase primarily reflects higher bank deposits due to transfers from sweep money market funds to bank sweep, balances, as well as other client-related deposit inflows and higher borrowings,changes in client cash allocations, partially offset by client purchases of other assets. During the first six months of 2018, Schwab issued senior notes and utilizedinvestment products. Federal Home Loan Bank (FHLB) advances were used to provide temporary funding for additional investments ahead of deposit growth. Theregrowth during the first quarter of 2018; there were no FHLB borrowings in the thirdfirst quarter of 2018.2019.




THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Asset Management and Administration Fees

The following tables presenttable presents asset management and administration fees, average client assets, and average fee yields:
Three Months Ended September 30,2018 2017
Average
Client
Assets		 Revenue Average
Fee		 Average
Client
Assets		 Revenue Average
Fee
Schwab money market funds before fee waivers$130,202
 $122
 0.37% $158,927
 $220
 0.55%
Fee waivers  —
     (1)  
Schwab money market funds130,202
 122
 0.37% 158,927
 219
 0.55%
Schwab equity and bond funds and ETFs219,137
 67
 0.12% 164,011
 56
 0.14%
Mutual Fund OneSource® and other non-transaction
fee funds
209,560
 171
 0.32% 219,076
 179
 0.32%
Other third-party mutual funds and ETFs (1)
342,316
 75
 0.09% 291,307
 65
 0.09%
Total mutual funds and ETFs (2)
$901,215
 435
 0.19% $833,321
 519
 0.25%
Advice solutions (2) 
           
Fee-based$234,338
 294
 0.50% $206,854
 265
 0.51%
Non-fee-based65,146
 —
 —
 50,758
 —
 —
Total advice solutions$299,484
 294
 0.39% $257,612
 265
 0.41%
Other balance-based fees (3)
400,048
 63
 0.06% 424,280
 67
 0.06%
Other (4)
  17
     10
  
Total asset management and administration fees  $809
     $861
  
Nine Months Ended September 30,2018 2017
Average
Client
Assets		 Revenue Average Fee Average Client Assets Revenue Average Fee
Schwab money market funds before fee waivers$142,177
 $451
 0.42% $160,230
 $675
 0.56%
Fee waivers  —
     (10)  
Schwab money market funds142,177
 451
 0.42% 160,230
 665
 0.55%
Schwab equity and bond funds and ETFs206,058
 195
 0.13% 151,579
 163
 0.14%
Mutual Fund OneSource® and other non-transaction
fee funds
216,699
 524
 0.32% 214,058
 528
 0.33%
Other third-party mutual funds and ETFs (1)
329,033
 216
 0.09% 278,479
 182
 0.09%
Total mutual funds and ETFs (2) 
$893,967
 1,386
 0.21% $804,346
 1,538
 0.26%
Advice solutions (2) 
           
Fee-based$228,326
 859
 0.50% $199,500
 765
 0.51%
Non-fee-based62,377
 —
 —
 46,785
 —
 —
Total advice solutions$290,703
 859
 0.40% $246,285
 765
 0.42%
Other balance-based fees (3)
404,596
 191
 0.06% 406,442
 192
 0.06%
Other (4)
  38
     34
  
Total asset management and administration fees  $2,474
     $2,529
  
Three Months Ended March 31,2019 2018
Average
Client
Assets		 Revenue Average
Fee		 Average
Client
Assets		 Revenue Average
Fee
Schwab money market funds$158,268
 $122
 0.31% $156,362
 $182
 0.47%
Schwab equity and bond funds, ETFs, and CTFs (1)
244,314
 70
 0.12% 212,519
 74
 0.14%
Mutual Fund OneSource® and other non-transaction fee funds
187,223
 147
 0.32% 222,669
 178
 0.32%
Other third-party mutual funds and ETFs (2)
452,461
 75
 0.07% 319,722
 70
 0.09%
Total mutual funds, ETFs, and CTFs (1,3)
$1,042,266
 414
 0.16% $911,272
 $504
 0.22%
Advice solutions (3) 
           
Fee-based$230,394
 278
 0.49% $224,760
 282
 0.51%
Non-fee-based66,756
 —
 —
 59,762
 —
 —
Total advice solutions$297,150
 278
 0.38% $284,522
 282
 0.40%
Other balance-based fees (1,4)
392,191
 52
 0.05% 410,443
 55
 0.05%
Other (5)
  11
     10
  
Total asset management and administration fees  $755
     $851
  
(1) Beginning in the first quarter of 2019, a change was made to move CTFs from other balance-based fees. Prior periods have been recast to reflect this change.
(2) Includes Schwab ETF OneSource™.
(2)(3) Beginning in the fourth quarter of 2017, a change was made to add non-fee-based average assets from managed portfolios. Average client assets for advice solutions may also include the asset balances contained in the mutual fund and/or ETF categories listed above. Prior periods have been adjusted to accommodate this change.
(3)(4) Includes various asset-related fees, such as trust fees, 401(k) recordkeeping fees, and mutual fund clearing fees and other service fees.
(4)(5) Includes miscellaneous service and transaction fees relating to mutual funds and ETFs that are not balance-based.

Asset management and administration fees decreased by $52$96 million, or 6%11%, and $55 million, or 2%, in the third quarter and first nine months of 2018, respectively, compared to the same periodsperiod in 2017. The decreases were2018. This decrease was due to lower sweep money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®. Part of the decline was offset by revenue from growing asset balances in purchased money market funds and other third-party mutual funds and ETFs.

The following table presents a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds, ETFs, and CTFs, and Mutual Fund OneSource® and other non-transaction fee (NTF) funds. These funds generated 45% of the asset management and administration fees earned during the first quarter of 2019, compared to 51% for the same period in 2018:

 Schwab Money
Market Funds		 
Schwab Equity and
Bond Funds, ETFs, and CTFs (1)
 
Mutual Fund OneSource® 
and Other NTF funds
Three Months Ended March 31, 2019 2018 2019 2018 2019 2018
Balance at beginning of period $153,472
 $163,650
 $209,471
 $196,784
 $180,532
 $225,202
Net inflows (outflows) 5,152
 (19,122) 7,248
 8,785
 (6,206) (4,929)
Net market gains (losses) and other 1,045
 467
 24,168
 (2,378) 20,790
 1,341
Balance at end of period $159,669
 $144,995
 $240,887
 $203,191
 $195,116
 $221,614
(1) Beginning in the first quarter of 2019, CTFs are included in these balances. Prior periods have been recast to reflect this change.




THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


fund revenue as a result of transfers to bank sweep, client asset allocation choices, and our 2017 fee reductions. Part of the declines were offset by revenue from growing asset balances in advice solutions, equity and bond funds, and ETFs.

The following tables present a roll forward of client assets for the Schwab money market funds, Schwab equity and bond funds and exchange-traded funds (ETFs), and Mutual Fund OneSource® and other non-transaction fee (NTF) funds. These funds generated 44% and 47% of the asset management and administration fees earned during the third quarter and first nine months of 2018, respectively, compared to 53% and 54% for the same periods in 2017:

 Schwab Money
Market Funds		 Schwab Equity and
Bond Funds and ETFs		 
Mutual Fund OneSource® 
and Other NTF funds
Three Months Ended September 30, 2018 2017 2018 2017 2018 2017
Balance at beginning of period $134,166
 $156,186
 $201,361
 $151,336
 $212,513
 $224,749
Net inflows (outflows) (6,204) 2,753
 6,596
 7,086
 (7,126) (13,255)
Net market gains (losses) and other 522
 235
 8,899
 6,676
 7,228
 9,684
Balance at end of period $128,484
 $159,174
 $216,856
 $165,098
 $212,615
 $221,178
  Schwab Money
Market Funds		 Schwab Equity and
Bond Funds and ETFs		 
Mutual Fund OneSource® 
and Other NTF funds
Nine Months Ended September 30, 2018 2017 2018 2017 2018 2017
Balance at beginning of period $163,650
 $163,495
 $181,608
 $125,813
 $225,202
 $198,924
Net inflows (outflows) (36,645) (4,832) 24,867
 22,347
 (25,403) (23,494)
Net market gains (losses) and other (1)
 1,479
 511
 10,381
 16,938
 12,816
 45,748
Balance at end of period $128,484
 $159,174
 $216,856
 $165,098
 $212,615
 $221,178
(1) Includes net inflows from other third-party mutual funds to Mutual Fund OneSource® in the second quarter of 2017.


Trading Revenue
The following table presents trading revenue and the related drivers:

Three Months Ended September 30, Percent
Change		 Nine Months Ended September 30, Percent
Change		Three Months Ended March 31, Percent
Change

2018 2017 2018 2017 2019 2018 
Daily average revenue trades (DARTs) (in thousands)382
 312
 22% 406
 313
 30%418
 462
 (10)%
Clients’ daily average trades (in thousands)683
 633
 8% 732
 602
 22%777
 812
 (4)%
Number of trading days62.5
 62.5
 —
 187.5
 187.5
 —
61.0
 61.0
 —
Daily average revenue per revenue trade$7.27
 $7.74
 (6)% $7.27
 $8.52
 (15)%$7.19
 $7.24
 (1)%
Trading revenue$176
 $151
 17% $557
 $500
 11%$185
 $201
 (8)%
DART volumes increased 22% and 30% in the third quarter and first nine months of 2018, respectively, compared to the prior year. This led to an increase in trading revenue of $25 million, or 17%, and $57 million, or 11%, in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017, as the volume growth more than offset Schwab’s commission pricing reductions implementeddecreased 10% in the first quarter of 2017. During that time, we announced two2019 compared to the same period in 2018, while daily average revenue per revenue trade remained relatively consistent. This led to a decrease in trading price reductions which lowered standard equity, ETF, and option trade commissions from $8.95 to $4.95 and lowered the per contract option fee from $.75 to $.65.revenue of $16 million, or 8%.

Other Revenue

Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and non-recurring gains. Other revenue increased $19 million, or 23%, in the first quarter of 2019 compared to the same period in 2018 primarily due to a gain from the assignment of leased office space. Order flow revenue was $33$32 million and $29 million during the third quarters of 2018 and 2017, respectively, and $104 million and $82$38 million during the first nine monthsquarters of 2019 and 2018, and 2017, respectively. These increases wereThis decrease was primarily due to higher rates on certain types of orders and higherlower volume of trades.




THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Total Expenses Excluding Interest
The following table shows a comparison of expenses excluding interest:
 Three Months Ended
September 30,		 Percent
Change		 Nine Months Ended
September 30,		 Percent
Change		 Three Months Ended
March 31,		 Percent
Change
 2018 2017 2018 2017  2019 2018 
Compensation and benefits                  
Salaries and wages $423
 $372
 14% $1,253
 $1,110
 13% $476
 $411
 16%
Incentive compensation 193
 187
 3% 615
 580
 6% 216
 212
 2%
Employee benefits and other 121
 103
 17% 384
 336
 14% 158
 147
 7%
Total compensation and benefits $737
 $662
 11% $2,252
 $2,026
 11% $850
 $770
 10%
Professional services 164
 152
 8% 476
 429
 11% 170
 156
 9%
Occupancy and equipment 124
 111
 12% 368
 323
 14% 131
 122
 7%
Advertising and market development 70
 63
 11% 220
 205
 7% 69
 73
 (5)%
Communications 59
 56
 5% 179
 171
 5% 62
 62
 —
Depreciation and amortization 78
 69
 13% 226
 200
 13% 83
 73
 14%
Regulatory fees and assessments 57
 43
 33% 158
 133
 19% 32
 51
 (37)%
Other 71
 64
 11% 232
 192
 21% 62
 89
 (30)%
Total expenses excluding interest $1,360
 $1,220
 11% $4,111
 $3,679
 12% $1,459
 $1,396
 5%
Expenses as a percentage of total net revenues                  
Compensation and benefits 29% 31%   30% 32%   31% 32%  
Advertising and market development 3% 3%   3% 3%   3% 3%  
Full-time equivalent employees (in thousands)                  
At quarter end 19.1
 17.3
 10%       20.0
 18.2
 10%
Average 19.0
 17.1
 11% 18.4
 16.7
 10% 19.9
 18.0
 11%
Total compensation and benefits increased in the thirdfirst quarter and first nine months of 20182019 compared to the same periodsperiod in 2017,2018, primarily due to an increase in employee headcount to support our expanding client base.

Professional services expense increased in the thirdfirst quarter and first nine months of 20182019 compared to the same periodsperiod in 2017,2018, primarily due to higher spending on technology projects, as well as an increase in asset management and administration-related expenses resulting fromoverall growth in the Schwab Funds®business and Schwab ETFs™.investments in projects to further drive efficiency and scale.
Occupancy and equipment expense increased in the thirdfirst quarter and first nine months of 20182019 compared to the same periodsperiod in 2017,2018, primarily due to an increase in software maintenance expenses and additional licenses to support growth in the business.
Depreciation and amortization expenses grew in the thirdfirst quarter and first nine months of 20182019 compared to the same periodsperiod in 2017,2018, primarily due to higher amortization of internally developed software associated with continued investments in software and technology enhancements.
Regulatory fees and assessments increaseddecreased in the thirdfirst quarter and first nine months of 20182019 compared to the same periodsperiod in 2017,2018, primarily due to a decrease in FDIC insurance assessments resulting from the elimination of the FDIC surcharge in the fourth quarter of 2018.

Other expenses decreased in the first quarter of 2019 compared to the same period in 2018, primarily due to lower bad debt expense.

Capital expenditures were $181 million and $135 million in the first quarters of 2019 and 2018, respectively. The increase in capital expenditures from the prior year was primarily due to the expansion of our campuses in the U.S. We anticipate capital expenditures for full-year 2019 will reach approximately 7-9% of total net revenues.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Taxes on Income

Taxes on income were $300 million and $219 million for the first quarters of 2019 and 2018, respectively, resulting in effective income tax rates on income before taxes of 23.7% and 21.9%, respectively. The increase in the effective tax rate was primarily due to a decrease in equity compensation benefit in the first quarter of 2019 compared to the same period in 2018, as well as state-related tax benefits recognized during the first quarter of 2018.

Segment Information

Financial information for our segments is presented in the following table:
  Investor Services Advisor Services Total
Three Months Ended March 31, Percent Change 2019 2018 Percent Change 2019 2018 Percent Change 2019 2018
Net Revenues                  
Net interest revenue 25% $1,195
 $957
 59% $486
 $306
 33% $1,681
 $1,263
Asset management and administration fees (10)% 533
 593
 (14)% 222
 258
 (11)% 755
 851
Trading revenue (13)% 111
 127
 —
 74
 74
 (8)% 185
 201
Other 13% 72
 64
 58% 30
 19
 23% 102
 83
Total net revenues 10% 1,911
 1,741
 24% 812
 657
 14% 2,723
 2,398
Expenses Excluding Interest 2% 1,062
 1,042
 12% 397
 354
 5% 1,459
 1,396
Income before taxes on income 21% $849
 $699
 37% $415
 $303
 26% $1,264
 $1,002

Investor Services

Total net revenues grew by 10% in the first quarter of 2019 compared to the same period in 2018, primarily due to an increase in FDIC insurance assessments, which rosenet interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased primarily due to higher net interest margin and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of higher average assets.transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®.

Other expensesExpenses excluding interest increased by 2% in the first nine monthsquarter of 20182019 compared to the same period in 2017,2018, primarily due to higher compensation and benefits due to increased headcount to support our expanding client base. This increase in expense was partially offset by a $15 million chargedecrease in FDIC insurance assessments due to the elimination of the FDIC surcharge in the fourth quarter of 2018 and lower bad debt expense.
Advisor Services
Total net revenues grew by 24% in the first quarter of 2018 associated with unsecured client margin losses in volatility-related products and other miscellaneous expense growth related2019 compared to the same period in 2018, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased primarily due to higher net interest margin and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, as well as client asset allocation choices including reduced usage of Mutual Fund OneSource®.

Expenses excluding interest increased by 12% in the first quarter of 2019 compared to the same period in 2018, primarily due to higher compensation and benefits due to increased headcount to support our expanding client base. This increase in expense was partially offset by lower bad debt expense and a decrease in FDIC insurance assessments due to the elimination of the FDIC surcharge in the fourth quarter of 2018.

Capital expenditures were $156 million and $417 million in the third quarter and first nine months of 2018, respectively, compared with $118 million and $271 million in the third quarter and first nine months of 2017, respectively. The increases in the third quarter and year-to-date capital expenditures from the same periods in 2017 were due primarily to our office campus expansion in the U.S. and investments in technology projects. We anticipate capital expenditures for full-year 2018 will reach approximately 6-7% of total net revenues.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)



Taxes on Income

Taxes on income were $296 million and $327 million for the third quarters of 2018 and 2017, respectively, resulting in effective income tax rates on income before taxes of 24.3% and 34.6%, respectively. Taxes on income were $780 million and $940 million for the first nine months of 2018 and 2017, respectively, resulting in effective income tax rates on income before taxes of 23.3% and 34.9%, respectively. The decrease in the effective tax rate was primarily due to the Tax Act which was signed into law on December 22, 2017. Among other things, the Tax Act lowered the federal corporate income tax rate from 35% to 21%, effective for tax years including or commencing January 1, 2018.

Segment Information

Financial information for our segments is presented in the following tables:
  Investor Services Advisor Services Total
Three Months Ended September 30, Percent Change 2018 2017 Percent Change 2018 2017 Percent Change 2018 2017
Net Revenues                  
Net interest revenue 39% $1,138
 $818
 47% $389
 $264
 41% $1,527
 $1,082
Asset management and administration fees (5)% 565
 595
 (8)% 244
 266
 (6)% 809
 861
Trading revenue 19% 112
 94
 12% 64
 57
 17% 176
 151
Other (2)% 53
 54
 (18)% 14
 17
 (6)% 67
 71
Total net revenues 20% 1,868
 1,561
 18% 711
 604
 19% 2,579
 2,165
Expenses Excluding Interest 11% 1,015
 918
 14% 345
 302
 11% 1,360
 1,220
Income before taxes on income 33% $853
 $643
 21% $366
 $302
 29% $1,219
 $945
  Investor Services Advisor Services Total
Nine Months Ended September 30, Percent Change 2018 2017 Percent Change 2018 2017 Percent Change 2018 2017
Net Revenues                  
Net interest revenue 33% $3,158
 $2,366
 35% $1,039
 $769
 34% $4,197
 $3,135
Asset management and administration fees (1)% 1,727
 1,743
 (5)% 747
 786
 (2)% 2,474
 2,529
Trading revenue 14% 354
 311
 7% 203
 189
 11% 557
 500
Other 14% 182
 159
 —
 53
 53
 11% 235
 212
Total net revenues 18% 5,421
 4,579
 14% 2,042
 1,797
 17% 7,463
 6,376
Expenses Excluding Interest 11% 3,069
 2,762
 14% 1,042
 917
 12% 4,111
 3,679
Income before taxes on income 29% $2,352
 $1,817
 14% $1,000
 $880
 24% $3,352
 $2,697

Investor Services

Total net revenues rose by 20% and 18% in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased due to higher net interest margins and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, client asset allocation choices, and our 2017 fee reductions.

Expenses excluding interest increased by 11% in both the third quarter and first nine months of 2018 compared to the same periods in 2017, primarily due to higher compensation and benefits, technology project spend, and asset management and administration-related expenses to support our expanding client base.


THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Advisor Services
Total net revenues rose by 18% and 14% in the third quarter and first nine months of 2018, respectively, compared to the same periods in 2017, primarily due to an increase in net interest revenue, partially offset by lower asset management and administration fees. Net interest revenue increased due to higher net interest margins and higher interest-earning assets. Asset management and administration fees decreased primarily due to lower money market fund revenue as a result of transfers to bank sweep, client asset allocation choices, and our 2017 fee reductions.

Expenses excluding interest increased by 14% in both the third quarter and first nine months of 2018 compared to the same periods in 2017, primarily due to higher compensation and benefits, technology project spend, and asset management and administration-related expenses to support our expanding client base.

RISK MANAGEMENT

Schwab’s business activities expose us to a variety of risks, including operational, credit, market, liquidity, and compliance risk.risks. The Company has a comprehensive risk management program to identify and manage these risks and their associated potential for financial and reputational impact. For a discussion of our risk management programs, see Item 7 – Risk Management in the 20172018 Form 10-K.

Net Interest Revenue Simulation

Schwab’s investment strategy is structured to produce an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall. For Schwab’sour net interest revenue sensitivity analysis, we use net interest revenue simulation modeling techniques to evaluate and manage the effect of changing interest rates. The simulation includes all interest-sensitive assets and liabilities. Key variables in the simulation include the repricing of financial instruments, prepayment, reinvestment, and product pricing assumptions. The simulations involve assumptions that are inherently uncertain and, as a result, cannot precisely estimate the impact of changes in interest rates on net interest revenue. Actual results may differ from simulated results due to balance growth or decline and the timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and management strategies, including changes in asset and liability mix.

If our guidelines for net interest revenue sensitivity are breached, management must report the breach to the Financial Risk Oversight Committee and establish a plan to address the interest rate risk. There were no breaches of Schwab’s net interest revenue sensitivity risk limits during the nine months ended September 30, 2018, or year ended December 31, 2017.

As represented by the simulations presented below, our investment strategy is structured to produce an increase in net interest revenue when interest rates rise and, conversely, a decrease in net interest revenue when interest rates fall.

The simulations in the following table assume that the asset and liability structure of the consolidated balance sheets would not be changed as a result of the simulated changes in interest rates. As we actively manage the consolidated balance sheets and interest rate exposure, in all likelihood we would take steps to manage additional interest rate exposure that could result from changes in the interest rate environment. The following table shows the simulated net interest revenue change over the next 12 months beginning September 30, 2018March 31, 2019 and December 31, 20172018 of a gradual 100 basis point increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period:

 September 30, 2018 December 31, 2017
Increase of 100 basis points 4.1 % 3.3 %
Decrease of 100 basis points (4.7)% (6.2)%
The change in net interest revenue sensitivities as of September 30, 2018 reflects the increase in interest rates across all maturities.



 March 31, 2019 December 31, 2018
Increase of 100 basis points 5.1% 4.4%
Decrease of 100 basis points (5.4)% (4.9)%

THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Liquidity Risk

Schwab’s primary source of funds is cash generated by client activity:activity which includes bank deposits and cash balances in client brokerage accounts. These funds are used to purchase investment securities and extend loans to clients.

Other sources of funds may include cash flows from operations, maturities and sales of investment securities, repayments on loans, securities lending of assets held in client brokerage accounts, repurchase agreements, and cash provided by external debt or equity financing.
 
To meet daily funding needs, we maintain liquidity in the form of overnight cash deposits and short-term investments. For unanticipated liquidity needs, a buffer of highly liquid investments, currently comprised ofincluding U.S. Treasury notes, is also maintained.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


In addition to internal sources of liquidity, Schwab has access to external funding. The following table describes external debt facilities available at September 30, 2018:March 31, 2019:
DescriptionBorrower Outstanding AvailableBorrower Outstanding Available
Federal Home Loan Bank secured credit facility (1)
Banking subsidiaries $—
 $36,122
Uncommitted, unsecured lines of credit with various external banksCSC, CS&Co —
 1,432
Unsecured commercial paper (2)
CSC —
 750
Committed, unsecured credit facility with various external banksCSC $—
 $750
CSC —
 750
Uncommitted, unsecured lines of credit with various external banksCSC, CS&Co —
 1,432
Federal Reserve Bank discount window (1)
CSB —
 2,422
Federal Home Loan Bank secured credit facility (2)
Banking subsidiaries —
 30,002
Unsecured commercial paper (3)
CSC —
 750
Federal Reserve Bank discount window (3)
Banking subsidiaries —
 8,446
(1) Amounts available are dependent on the amount of First Mortgages, HELOCs, and the fair value of certain investment securities that are pledged as collateral.
(2) Amounts available are dependent on the amount of first lien residential real estate mortgage loans (First Mortgages), home equity lines of credit (HELOCs), and the fair value of certain investment securities that are pledged as collateral.
(3) CSC has authorization from its Board of Directors to issue Commercial Paper Notes to not exceed $1.5 billion. Management has set a current limit not to exceed the amount of the committed, unsecured credit facility.
(3) Amounts available are dependent on the fair value of certain investment securities that are pledged as collateral.

CSC’s ratings for Commercial Paper Notes are P1 by Moody’s Investor Service (Moody’s), A1 by Standard & Poor’s Rating Group (Standard & Poor’s), and F1 by Fitch Ratings, Ltd (Fitch).
Borrowings
The following are details of the Senior Notes and short-term borrowings:
September 30, 2018Par
Outstanding		 MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
Senior Notes$5,781
 2020 - 20283.31%A2AA
Short-term borrowings$—
 N/AN/AN/AN/AN/A
N/A Not applicable.

New Debt Issuances

All debt issuances in 2018 were senior unsecured obligations with interest payable quarterly or semi-annually. Additional details are as follows:
Issuance Date
Issuance
Amount
Maturity
Date
Interest
Rate
Interest
Payable
May 22, 2018$600
5/21/2021Three-month LIBOR + 0.32%Quarterly
May 22, 2018$600
5/21/20213.25%Semi-annually
May 22, 2018$750
5/21/20253.85%Semi-annually

Schwab isCompany was subject to, and was in compliance with, the modified liquidity coverage ratio (LCR) rule at September 30, 2018. Schwab expectsMarch 31, 2019. The table below presents information about our average LCR:
 Average for the
Three Months Ended
March 31, 2019
 
Total eligible high quality liquid assets$38,797
Net cash outflows (1)
$34,992
LCR111%
(1) This amount represents modified net cash outflows as defined by the LCR rule, which requires that high quality liquid assets (HQLA) cover 70% of total stressed net cash outflows.

As Schwab’s consolidated balance sheet assets to remainwere above $250 billion inat December 31, 2018, and as a result, would becomeSchwab became subject to the full LCR rule inon April 1, 2019.

Borrowings
The following are details of the Senior Notes:
March 31, 2019Par
Outstanding		 MaturityWeighted Average
Interest Rate		Moody’sStandard
& Poor’s		Fitch
Senior Notes$6,881
 2020 - 20293.42%A2AA


THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


CAPITAL MANAGEMENT

Schwab seeks to manage capital to a level and composition sufficient to support execution of our business strategy, including anticipated balance sheet growth, providing financial support to our subsidiaries, and sustained access to the capital markets, while at the same time meeting our regulatory capital requirements and serving as a source of financial strength to our banking subsidiaries. Schwab’s primary sources of capital are funds generated by the operations of subsidiaries and securities issuances by CSC in the capital markets. To ensure that Schwab has sufficient capital to absorb unanticipated losses or declines in asset values, we have adopted a policy to remain well capitalized even in stressed scenarios.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Regulatory Capital Requirements

CSC and CSB are subject to various capital requirements set by regulatory agencies as discussed in further detail in the 20172018 Form 10-K and in Item 1 – Note 16.15. As of September 30, 2018,March 31, 2019, CSC and CSB are considered well capitalized.

The following table details CSC’s consolidated and CSB’s capital ratios as of September 30, 2018March 31, 2019 and December 31, 2017:2018:
September 30, 2018December 31, 2017
March 31, 2019 (1)
December 31, 2018
CSC CSB CSC CSBCSC CSB CSC CSB
Total stockholders’ equity$20,834
 $14,899
 $18,525
 $13,224
$21,625
 $15,744
 $20,670
 $15,615
Less:              
Preferred stock2,793
 —
 2,793
 —
2,793
 —
 2,793
 —
Common Equity Tier 1 Capital before regulatory adjustments$18,041
 $14,899
 $15,732
 $13,224
$18,832
 $15,744
 $17,877
 $15,615
Less:              
Goodwill, net of associated deferred tax liabilities$1,191
 $13
 $1,191
 $13
$1,188
 $13
 $1,188
 $13
Other intangible assets, net of associated deferred tax liabilities127
 —
 61
 —
118
 —
 125
 —
Deferred tax assets, net of valuation allowances and deferred tax liabilities2
 —
 2
 —
3
 1
 3
 1
AOCI adjustment (1)
(304) (278) (152) (144)—
 —
 (252) (231)
Common Equity Tier 1 Capital$17,025
 $15,164
 $14,630
 $13,355
$17,523
 $15,730
 $16,813
 $15,832
Tier 1 Capital$19,818
 $15,164
 $17,423
 $13,355
$20,316
 $15,730
 $19,606
 $15,832
Total Capital19,846
 15,191
 17,452
 13,382
20,338
 15,751
 19,628
 15,853
Risk-Weighted Assets86,830
 75,224
 75,866
 66,519
88,362
 76,114
 95,441
 80,513
Total Leverage Exposure (1)
287,713
 229,292
 N/A
 N/A
Common Equity Tier 1 Capital/Risk-Weighted Assets19.6% 20.2% 19.3% 20.1%19.8% 20.7% 17.6% 19.7%
Tier 1 Capital/Risk-Weighted Assets22.8% 20.2% 23.0% 20.1%23.0% 20.7% 20.5% 19.7%
Total Capital/Risk-Weighted Assets22.9% 20.2% 23.0% 20.1%23.0% 20.7% 20.6% 19.7%
Tier 1 Leverage Ratio7.5% 7.1% 7.6% 7.1%7.2% 7.0% 7.1% 7.2%
Supplementary Leverage Ratio (1)
7.1% 6.9% N/A
 N/A
(1) Beginning in 2019, CSC and CSB haveare subject to the “advanced approaches” framework under the Basel III capital rule. As a result, we are now required to include all components of accumulated other comprehensive income (AOCI) in regulatory capital and report our supplementary leverage ratio, which is calculated as Tier 1 capital divided by total leverage exposure. Total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. Prior to 2019, CSC and CSB elected to opt outopt-out of the requirement to include most components of accumulated other comprehensive income (AOCI)AOCI in Common Equity Tier 1 Capital. Schwab expects consolidated balance sheet assets to remain above $250 billion inCapital; the amounts and ratios for December 31, 2018 and as a result, would no longer exclude AOCI from regulatory capital beginning in 2019.are presented on this basis.
N/A Not applicable.

CSB is also subject to regulatory requirements that restrict and govern the terms of affiliate transactions. In addition, CSB is required to provide notice to, and may be required to obtain approval from, the Office of the Comptroller of the Currency and the Federal Reserve to declare dividends to CSC.

Schwab’s primary broker-dealer subsidiary, CS&Co, is subject to regulatory requirements of the Uniform Net Capital Rule. At September 30, 2018,March 31, 2019, CS&Co exceededwas in compliance with its net capital requirements.

In addition to the capital requirements above, Schwab’s subsidiaries are subject to other regulatory requirements intended to ensure financial soundness and liquidity. See Item 1 – Note 1615 for additional information on the components of stockholders’ equity and information on the capital requirements of significant subsidiaries.



THE CHARLES SCHWAB CORPORATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Tabular Amounts in Millions, Except Ratios, or as Noted)


Dividends

On July 25, 2018,January 30, 2019, the Board of Directors of the Company declared a threefour cent, or 30%31%, increase in the quarterly cash dividend to $.13$.17 per common share.

Cash dividends paid and per share amounts for the first ninethree months of 20182019 and 20172018 are as follows:
 2018 2017 2019 2018
Nine Months Ended September 30, Cash Paid Per Share
Amount		 Cash Paid Per Share
Amount
Three Months Ended March 31, Cash Paid Per Share
Amount		 Cash Paid Per Share
Amount
Common Stock $448
 $.33
 $323
 $.24
 $228
 $.17
 $136
 $.10
Series A Preferred Stock (1)
 28
 70.00
 28
 70.00
 14
 35.00
 14
 35.00
Series B Preferred Stock (2,5)
 N/A
 N/A
 22
 45.00
Series C Preferred Stock (2)
 27
 45.00
 27
 45.00
 9
 15.00
 9
 15.00
Series D Preferred Stock (2)
 33
 44.64
 33
 44.64
 11
 14.88
 11
 14.88
Series E Preferred Stock (3)
 28
 4,625.00
 23
 3,867.01
 14
 2,312.50
 14
 2,312.50
Series F Preferred Stock (4)
 15
 2,930.56
 N/A
 N/A
 —
 —
 N/A
 N/A
(1) Dividends paid semi-annually until February 1, 2022 and quarterly thereafter.
(2) Dividends paid quarterly.
(3) Dividends paid semi-annually until March 1, 2022 and quarterly thereafter.
(4)Series F Preferred Stock was issued on October 31, 2017. Dividends paid semi-annually beginning on June 1, 2018 until December 1, 2027, and quarterly thereafter.
(5) Series B Preferred Stock was redeemed on December 1, 2017.
N/A Not applicable.


OTHER

Foreign Holdings
At September 30, 2018,March 31, 2019, Schwab had exposure to non-sovereign financial and non-financial institutions in foreign countries, as well as agencies of foreign governments. At September 30, 2018,March 31, 2019, the fair value of these holdings totaled $7.4$7.0 billion, with the top three exposures being to issuers and counterparties domiciled in France at $2.3$2.0 billion, Sweden at $1.8$1.0 billion, and Canada at $0.8 billion.
In addition to the direct holdings in foreign companies and securities issued by foreign government agencies, Schwab has indirect exposure to foreign countries through its investments in CSIM money market funds (collectively, the Funds) resulting from brokerage clearing activities. At September 30, 2018, Schwab had $21 million in investments in these Funds. Certain of the Funds’ positions include certificates of deposit, time deposits, commercial paper, and corporate debt securities issued by counterparties in foreign countries. Additionally, at September 30, 2018, Schwab had outstanding margin loans to foreign residents of $816 million.$631 million at March 31, 2019.

Off-Balance Sheet Arrangements
Schwab enters into various off-balance sheet arrangements in the ordinary course of business, primarily to meet the needs of itsour clients. These arrangements include firm commitments to extend credit. Additionally, Schwab enters into guarantees and other similar arrangements in the ordinary course of business. For information on each of these arrangements, see Item 1 – Note 5, Note 6, Note 8, Note 9,10, and Note 10,11, and Item 8 – Note 1314 in the 20172018 Form 10-K.


CRITICAL ACCOUNTING ESTIMATES

Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates in the 20172018 Form 10-K. There have been no changes to critical accounting estimates during the first ninethree months of 2018.2019.




THE CHARLES SCHWAB CORPORATION



Item 3. Quantitative and Qualitative Disclosures About Market Risk

For discussion of the quantitative and qualitative disclosures about market risk, see Risk Management in Item 2.



Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Income
(In Millions, Except Per Share Amounts)
(Unaudited)

 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
 2018 2017 2018 2017 2019 2018
Net Revenues              
Interest revenue  $1,755
 $1,176
  $4,766
 $3,358
  $1,998
 $1,421
Interest expense  (228) (94) (569) (223)  (317) (158)
Net interest revenue  1,527
 1,082
 4,197
 3,135
  1,681
 1,263
Asset management and administration fees  809
 861
  2,474
 2,529
  755
 851
Trading revenue  176
 151
 557
 500
  185
 201
Other  67
 71
 235
 212
  102
 83
Total net revenues  2,579
 2,165
 7,463
 6,376
  2,723
 2,398
Expenses Excluding Interest              
Compensation and benefits  737
 662
  2,252
 2,026
  850
 770
Professional services  164
 152
  476
 429
  170
 156
Occupancy and equipment  124
 111
  368
 323
  131
 122
Advertising and market development  70
 63
  220
 205
  69
 73
Communications  59
 56
  179
 171
  62
 62
Depreciation and amortization  78
 69
  226
 200
  83
 73
Regulatory fees and assessments 57
 43
 158
 133
 32
 51
Other  71
 64
  232
 192
  62
 89
Total expenses excluding interest  1,360
 1,220
  4,111
 3,679
  1,459
 1,396
Income before taxes on income  1,219
 945
  3,352
 2,697
  1,264
 1,002
Taxes on income  296
 327
  780
 940
  300
 219
Net Income  923
 618
  2,572
 1,757
  964
 783
Preferred stock dividends and other(1)  38
 43
  128
 127
  39
 37
Net Income Available to Common Stockholders  $885
 $575
  $2,444
 $1,630
  $925
 $746
Weighted-Average Common Shares Outstanding:            
Basic  1,351
 1,339
  1,349
 1,338
  1,333
 1,347
Diluted(2) 1,364
 1,353
 1,363
 1,352
 1,344
 1,362
Earnings Per Common Shares Outstanding:            
Basic  $.66
 $.43
  $1.81
 $1.22
  $.69
 $.55
Diluted(2)  $.65
 $.42
  $1.79
 $1.21
  $.69
 $.55
Dividends Declared Per Common Share $.13
 $.08
 $.33
 $.24
(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 16 million and 11 million shares for the first quarters of 2019 and 2018, respectively.

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In Millions)
(Unaudited)


 Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
 2018 2017 2018 2017 2019 2018
Net income $923
 $618
 $2,572
 $1,757
 $964
 $783
Other comprehensive income (loss), before tax:  
  
  
  
  
  
Change in net unrealized gain (loss) on available for sale securities:  
  
  
  
  
  
Net unrealized gain (loss) (43) —
 (184) 81
 227
 (108)
Reclassification of net unrealized loss transferred to held to maturity —
 —
 —
 227
Other reclassifications included in other revenue —
 —
 —
 (7) (1) —
Change in net unrealized gain (loss) on held to maturity securities:        
Reclassification of net unrealized loss transferred from available for sale —
 —
 —
 (227)
Amortization of amounts previously recorded upon transfer from available for sale 8
 10
 26
 21
Other —
 —
 —
 (3)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 12
 9
Other comprehensive income (loss), before tax (35) 10
 (158) 92
 238
 (99)
Income tax effect 9
 (4) 39
 (35) (57) 24
Other comprehensive income (loss), net of tax (26) 6
 (119) 57
 181
 (75)
Comprehensive Income $897
 $624
 $2,453
 $1,814
 $1,145
 $708

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Balance Sheets
(In Millions, Except Per Share and Share Amounts)
(Unaudited)


September 30, 2018 December 31, 2017March 31, 2019 December 31, 2018
Assets      
Cash and cash equivalents$21,830
 $14,217
$32,558
 $27,938
Cash and investments segregated and on deposit for regulatory purposes (including resale
agreements of $4,424 at September 30, 2018 and $6,596 at December 31, 2017)		8,487
 15,139
Cash and investments segregated and on deposit for regulatory purposes (including resale
agreements of $6,861 at March 31, 2019 and $7,195 at December 31, 2018)		13,924
 13,563
Receivables from brokers, dealers, and clearing organizations798
 649
616
 553
Receivables from brokerage clients — net22,411
 20,576
20,529
 21,651
Other securities owned — at fair value500
 539
521
 539
Available for sale securities57,558
 49,995
60,005
 66,578
Held to maturity securities138,952
 120,926
132,420
 144,009
Bank loans — net16,564
 16,478
16,510
 16,609
Equipment, office facilities, and property — net1,683
 1,471
1,813
 1,769
Goodwill1,227
 1,227
1,227
 1,227
Other assets2,092
 2,057
2,692
 2,046
Total assets$272,102
 $243,274
$282,815
 $296,482
Liabilities and Stockholders’ Equity   
   
Bank deposits$213,408
 $169,656
$219,454
 $231,423
Payables to brokers, dealers, and clearing organizations1,522
 1,287
1,602
 1,831
Payables to brokerage clients27,851
 31,243
29,701
 32,726
Accrued expenses and other liabilities2,697
 2,810
3,604
 2,954
Short-term borrowings—
 15,000
Long-term debt5,790
 4,753
6,829
 6,878
Total liabilities251,268
 224,749
261,190
 275,812
Stockholders’ equity:   
   
Preferred stock — $.01 par value per share; aggregate liquidation preference
of $2,850		2,793
 2,793
2,793
 2,793
Common stock — 3 billion shares authorized; $.01 par value per share; 1,487,543,446
shares issued		15
 15
15
 15
Additional paid-in capital4,484
 4,353
4,548
 4,499
Retained earnings16,615
 14,408
18,017
 17,329
Treasury stock, at cost — 135,806,047 shares at September 30, 2018 and 142,210,890
shares at December 31, 2017		(2,769) (2,892)
Treasury stock, at cost — 153,141,949 shares at March 31, 2019 and 155,116,695
shares at December 31, 2018		(3,677) (3,714)
Accumulated other comprehensive income (loss)(304) (152)(71) (252)
Total stockholders’ equity20,834
 18,525
21,625
 20,670
Total liabilities and stockholders’ equity$272,102
 $243,274
$282,815
 $296,482

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Stockholders’ Equity
(In Millions)
(Unaudited)


             Accumulated Other Comprehensive Income (Loss)               Accumulated Other Comprehensive Income (Loss)  
 Preferred Stock Common stock Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost		 Total Preferred Stock Common stock Additional Paid-in Capital Retained Earnings Treasury Stock,
at cost		 Total
 Shares Amount Accumulated Other Comprehensive Income (Loss) Shares Amount Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2016 $2,783
 1,488
 $15
 $4,267
 $12,649
 $(3,130) $(163)$16,421
Balance at December 31, 2017 $2,793
 1,488
 $15
 $4,353
 $14,408
 $(2,892) $(152)$18,525
Adoption of accounting standards —
 —
 —
 —
 200
 —
 (33) 167
Net income —
 —
 —
 —
 1,757
 —
 —
 1,757
 —
 —
 —
 —
 783
 —
 —
 783
Other comprehensive income (loss), net of tax —
 —
 —
 —
 —
 —
 57
 57
 —
 —
 —
 —
 —
 —
 (75) (75)
Dividends declared on preferred stock —
 —
 —
 —
 (120) —
 —
 (120) —
 —
 —
 —
 (34) —
 —
 (34)
Dividends declared on common stock —
 —
 —
 —
 (323) —
 —
 (323)
Dividends declared on common stock — $.10 per
share
 —
 —
 —
 —
 (135) —
 —
 (135)
Stock option exercises and other —
 —
 —
 (30) —
 128
 —
 98
 —
 —
 —
 (12) —
 61
 —
 49
Share-based compensation and related tax
effects
 —
 —
 —
 105
 —
 —
 —
 105
Share-based compensation —
 —
 —
 47
 —
 —
 —
 47
Other —
 —
 —
 23
 —
 9
 —
 32
 —
 —
 —
 9
 —
 (6) —
 3
Balance at September 30, 2017 $2,783
 1,488
 $15
 $4,365
 $13,963
 $(2,993) $(106) $18,027
Balance at March 31, 2018 $2,793
 1,488
 $15
 $4,397
 $15,222
 $(2,837) $(260) $19,330
                                
Balance at December 31, 2017 $2,793
 1,488
 $15
 $4,353
 $14,408
 $(2,892) $(152) $18,525
Adoption of accounting standards (Note 2) —
 —
 —
 —
 200
 —
 (33) 167
Balance at December 31, 2018 $2,793
 1,488
 $15
 $4,499
 $17,329
 $(3,714) $(252) $20,670
Net income —
 —
 —
 —
 2,572
 —
 —
 2,572
 —
 —
 —
 —
 964
 —
 —
 964
Other comprehensive income (loss), net of tax —
 —
 —
 —
 —
 —
 (119) (119) —
 —
 —
 —
 —
 —
 181
 181
Dividends declared on preferred stock —
 —
 —
 —
 (117) —
 —
 (117) —
 —
 —
 —
 (34) —
 —
 (34)
Dividends declared on common stock —
 —
 —
 —
 (448) —
 —
 (448)
Dividends declared on common stock — $.17 per
share
 —
 —
 —
 —
 (228) —
 —
 (228)
Stock option exercises and other —
 —
 —
 (8) —
 116
 —
 108
 —
 —
 —
 (14) —
 40
 —
 26
Share-based compensation and related tax
effects
 —
 —
 —
 106
 —
 —
 —
 106
Share-based compensation —
 —
 —
 53
 —
 —
 —
 53
Other —
 —
 —
 33
 —
 7
 —
 40
 —
 —
 —
 10
 (14) (3) —
 (7)
Balance at September 30, 2018 $2,793
 1,488
 $15
 $4,484
 $16,615
 $(2,769) $(304) $20,834
Balance at March 31, 2019 $2,793
 1,488
 $15
 $4,548
 $18,017
 $(3,677) $(71) $21,625

See Notes to Condensed Consolidated Financial Statements.



THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)


 Nine Months Ended
September 30,		 Three Months Ended
March 31,
 2018 
2017 (1)
 2019 2018
Cash Flows from Operating Activities  
    
  
Net income $2,572
 $1,757
 $964
 $783
Adjustments to reconcile net income to net cash (used for) provided by operating activities:  
  
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
  
Share-based compensation 113
 111
 56
 50
Depreciation and amortization 226
 200
 83
 73
Premium amortization, net, on available for sale and held to maturity securities 276
 240
 68
 96
Other 108
 35
 33
 36
Net change in:  
  
  
  
Investments segregated and on deposit for regulatory purposes 6,973
 6,864
 (1,520) 853
Receivables from brokers, dealers, and clearing organizations (147) 61
 (61) (245)
Receivables from brokerage clients (1,858) (1,310) 1,121
 (595)
Other securities owned 39
 22
 18
 39
Other assets (143) (76) (15) (16)
Payables to brokers, dealers, and clearing organizations 43
 (957) (229) (325)
Payables to brokerage clients (3,392) (4,414) (3,025) (155)
Accrued expenses and other liabilities (155) (82) (88) (346)
Net cash provided by operating activities 4,655
 2,451
Net cash provided by (used for) operating activities (2,595) 248
Cash Flows from Investing Activities        
Purchases of available for sale securities (19,781) (6,375) (1,132) (4,631)
Proceeds from sales of available for sale securities 115
 5,773
 10,652
 —
Principal payments on available for sale securities 12,091
 6,532
 6,039
 2,695
Purchases of held to maturity securities (30,639) (19,886) (1,235) (8,235)
Principal payments on held to maturity securities 12,382
 7,927
 3,996
 3,548
Net increase in bank loans (86) (829) 81
 74
Purchases of equipment, office facilities, and property (400) (267) (139) (122)
Purchases of Federal Home Loan Bank stock (156) (160) (2) —
Proceeds from sales of Federal Home Loan Bank stock 528
 106
 —
 172
Other investing activities (74) (52) 25
 (40)
Net cash provided by (used for) investing activities (26,020) (7,231) 18,285
 (6,539)
Cash Flows from Financing Activities        
Net change in bank deposits(1) 43,752
 1,809
 (11,969) 20,528
Net change in short-term borrowings (15,000) 5,000
 —
 (15,000)
Issuance of long-term debt 1,936
 643
Repayment of long-term debt (906) (256) —
 (627)
Dividends paid (579) (456) (276) (184)
Proceeds from stock options exercised and other 108
 98
Proceeds from stock options exercised 26
 49
Other financing activities (12) (10) (10) (10)
Net cash provided by (used for) financing activities 29,299
 6,828
 (12,229) 4,756
Increase (Decrease) in Cash and Cash Equivalents, including Amounts Restricted 7,934
 2,048
 3,461
 (1,535)
Cash and Cash Equivalents including Amounts Restricted at Beginning of Year 19,160
 17,873
Cash and Cash Equivalents, including Amounts Restricted at Beginning of Year 38,227
 19,160
Cash and Cash Equivalents, including Amounts Restricted at End of Period $27,094
 $19,921
 $41,688
 $17,625
(1)Adjusted for the retrospective adoption of ASU 2016-18. See Note 2.

Continued on following page




THE CHARLES SCHWAB CORPORATION
Condensed Consolidated Statements of Cash Flows
(in Millions)
(Unaudited)


Continued from previous page
 Nine Months Ended
September 30,		 Three Months Ended
March 31,
 2018 
2017 (1)
 2019 2018
Supplemental Cash Flow Information        
Non-cash investing activity:    
Securities purchased during the period but settled after period end $—
 $160
Non-cash financing activity:    
Extinguishment of finance lease obligation through an assignment agreement $52
 $—
Other Supplemental Cash Flow Information    
Cash paid during the period for:        
Interest $550
 $233
 $336
 $169
Income taxes $649
 $890
 $23
 $3
Non-cash investing activity:    
Securities purchased during the period but settled after period end $221
 $3,977
Amounts included in the measurement of lease liabilities (2)
 $32
 N/A
Leased assets obtained in exchange for new operating lease liabilities (2)
 $28
 N/A
        
 September 30, 2018 September 30, 2017 March 31, 2019 March 31, 2018
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (2)
    
Reconciliation of cash, cash equivalents and amounts reported within the balance sheet (3)
    
Cash and cash equivalents $21,830
 $12,253
 $32,558
 $14,145
Restricted cash and cash equivalents amounts included in cash and investments segregated
and on deposit for regulatory purposes		 5,264
 7,668
 9,130
 3,480
Total cash and cash equivalents, including amounts restricted shown in the
statement of cash flows		 $27,094
 $19,921
 $41,688
 $17,625
(1)Adjusted Includes transfers from other sweep features to bank sweep of $10.2 billion and $24.9 billion for the retrospectivethree months ended March 31, 2019 and 2018, respectively.
(2) These amounts are presented beginning in 2019 as part of the adoption of ASU 2016-18.2016-02. See Note 2.Notes 2 and 9 for additional information related to this adoption.
(2)(3) For more information on the nature of restrictions on restricted cash and cash equivalents see Note 16.15.
N/A Not applicable

See Notes to Condensed Consolidated Financial Statements.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)


1.    Introduction and Basis of Presentation
The Charles Schwab Corporation (CSC) is a savings and loan holding company engaged,and engages, through its subsidiaries, in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.

Significant business subsidiaries of CSC include the following:

Charles Schwab & Co., Inc. (CS&Co), a securities broker-dealer;
Charles Schwab Bank (CSB), a federal savings bank; and
•
Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab’s proprietary mutual funds (Schwab Funds®) and for Schwab’s exchange-traded funds (Schwab ETFs™).

Unless otherwise indicated, the terms “Schwab,” “the Company,” “we,” “us,” or “our” mean CSC together with its consolidated subsidiaries.

These unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the U.S. (GAAP), which require management to make certain estimates and assumptions that affect the reported amounts in the accompanying financial statements, and in the related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. While management makes its best judgment, actual amounts or results could differ from these estimates. In the opinion of management, all normal, recurring adjustments have been included for a fair statement of this interim financial information.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in Schwab’s 20172018 Form 10-K.
The significant accounting policies are included in Note 2 in the 20172018 Form 10-K. There have been no significant changes to these accounting policies during the first ninethree months of 2018,2019, except as described in Note 2 below.
Principles of Consolidation
Schwab evaluates all entities in which it has financial interests for consolidation, except for money market funds, which are specifically excluded from consolidation guidance. When an entity is evaluated for consolidation, Schwab determines whether its interest in the entity constitutes a controlling financial interest under either the variable interest entity (VIE) model or a voting interest entity (VOE) model. In evaluating whether Schwab’s interest in a VIE is a controlling financial interest, we consider whether our involvement, in the context of the design, purpose, and risks of the VIE, as well as any involvement of related parties, provides us with (i) the power to direct the most significant activities of the VIE, and (ii) the obligation to absorb losses or receive benefits that are significant to the VIE. If both of these conditions exist, then Schwab would be the primary beneficiary of that VIE, and consolidate it. Based upon the assessments for all of our interests in VIEs, there are no cases where Schwab is the primary beneficiary; therefore, we are not required to consolidate any VIEs. Schwab consolidates all VOEs in which it has majority-voting interests.
Investments in entities in which Schwab does not have a controlling financial interest are accounted for under the equity method of accounting when we have the ability to exercise significant influence over operating and financing decisions of the entity. Investments in entities for which Schwab does not have the ability to exercise significant influence are generally carried at cost and adjusted for impairment and observable price changes of the identical or similar investments of the same issuer (adjusted cost method), except for certain investments in qualified affordable housing projects which are accounted for under the proportional amortization method. All equity method, adjusted cost method, and proportional amortization method investments are included in other assets on the condensed consolidated balance sheets.




CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

2.    New Accounting Standards

Adoption of New Accounting Standards

StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers (Topic 606)” and related ASUsClarifies that revenue from contracts with clients should be recognized in a manner that depicts the timing of the related transfer of goods or performance of services at an amount that reflects the expected consideration.

Adoption allows either full or modified retrospective transition. Full retrospective transition required a cumulative effect adjustment to retained earnings as of the earliest comparative period presented. Modified retrospective transition required a cumulative effect adjustment to retained earnings as of the beginning of the reporting period in which the entity first applies the new guidance.		January 1, 2018The guidance does not apply to revenue earned from the Company’s loans and securities. Accordingly, net interest revenue was not impacted. The primary impact for the Company was the capitalization on the consolidated balance sheets of sales commissions paid to employees for obtaining new contracts with clients. These capitalized costs resulted in an asset of $219 million and a related deferred tax liability of $52 million upon adoption. The asset is being amortized to expense over time as the related revenues are recognized.

The Company adopted the revenue recognition guidance using the modified retrospective method for all contracts that were not completed as of January 1, 2018. Further details of the impact of adoption are included below in this Note as well as in Note 3.
ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10)” and ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10)”Requires: (i) equity investments to be measured at fair value, with changes in fair value recognized in net income, unless the equity method is applied or the equity investments do not have readily determinable fair values in which case a practical alternative may be elected; (ii) use of an exit price when measuring the fair value of financial instruments for disclosures; (iii) separate presentation of financial assets and liabilities by measurement category and form of instrument on the balance sheet or in the accompanying notes.

Adoption requires a cumulative effect adjustment to the balance sheet as of the beginning of the year of initial application, except for certain changes that require prospective adoption.		January 1, 2018The Company adopted this guidance on a prospective basis for its equity securities that do not have readily determinable fair values. No other significant changes resulted from adoption. Therefore, there was no material impact on the Company’s financial statements.

The Company elected to use the alternative to fair value measurement for its equity securities that do not have readily determinable fair values. These equity securities will be adjusted for impairment and observable price changes of the identical or similar investments of the same issuer, as applicable. Schwab refers to this approach as the adjusted cost method. This method was applied to an immaterial amount of Community Reinvestment Act (CRA) investments included in other assets on the consolidated balance sheets.
ASU 2016-18, “Statement of Cash Flows (Topic 230) – Restricted Cash a Consensus of the Emerging Issues Task Force”Requires that the statement of cash flows explain the change during the period in the total cash and cash equivalents, including restricted cash and cash equivalents.

Adoption requires retrospective presentation of the statement of cash flows to include restricted cash and cash equivalents in the beginning and ending amounts.		January 1, 2018The Company adopted this guidance on a retrospective basis. The Company has significant amounts of restricted cash and cash equivalents due to its business as a broker-dealer.

As a result of the adoption, changes in restricted cash and cash equivalents included within cash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets are now presented with changes in cash and cash equivalents throughout the consolidated statements of cash flows. The amount of restricted cash and cash equivalents is included in a separate table in the consolidated statements of cash flows.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

StandardDescriptionDate of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”Permits reclassification of the impacts on certain tax affected items included in AOCI that were adjusted through income from continuing operations rather than AOCI upon the effective date of the Tax Act.

Adoption provides for retrospective adoption to all periods presented and impacted by the Tax Act or as of the beginning of the period of adoption.		January 1, 2018The Company adopted this guidance as of January 1, 2018. The Company elected to reclassify the income tax effects of the Tax Act from items in AOCI into retained earnings as of the beginning of the period of adoption.

Adoption resulted in a reduction in AOCI and a corresponding increase in retained earnings of $33 million.

New Accounting Standards Not Yet Adopted

StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2016-02, “Leases (Topic 842)”
Amends the accounting for leases by lessees and lessors. The primary change from the new guidance is the recognition of right-of-use (ROU) assets and lease liabilities by lessees for those leases classified as operating leases. Additional changes include accounting for lease origination and executory costs, required lessee reassessments during the lease term due to changes in circumstances, and expanded lease disclosures.

Adoption provides for modified retrospective transition as of the beginning of the earliest comparative period presented in the financial statements in which the entity first applies the new standard or, prospectively with anoptionally, through another transition method by which a cumulative-effect adjustment is recorded to retained earnings as of the beginning of the period of adoption. Certain transition relief is permitted if elected by the entity.
January 1, 2019
The Company plans to adoptadopted the new lease accounting guidance prospectively as of January 1, 2019 with a cumulative-effect adjustmentunder the optional transition method provided electing not to recast its comparative periods. In addition, the opening balanceCompany elected the package of retained earnings (i.e., prior periods will not be adjusted).practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company does not expect this guidance will have a material impact on its earnings per common share (EPS). However, it will resultadoption resulted in a gross up of the consolidated balance sheet due to recognition of right-of-useROU assets and lease liabilities primarily related to the CS&Co leases of office space and branches. TheseThe amounts will bewere based on the present value of our remaining operating lease payments (seepayments. The Company’s ROU assets and related lease liabilities upon adoption were $596 million and $662 million, respectively. Further details on the impact of adoption are included below in this Note 13as well as in Note 9.
ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”
Shortens the 2017 10-Kamortization period for the undiscounted rental commitmentspremium on certain callable debt securities to the earliest call date. The amendments are applicable to any purchased individual debt security with an explicit and noncontingent call feature with a fixed price on a preset date. ASU 2017-08 does not impact the accounting for operating leases).callable debt securities held at a discount.

Adoption requires modified retrospective transition as of the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings.
January 1, 2019The Company adopted this guidance as of January 1, 2019 using the modified retrospective method. Adoption resulted in an immaterial cumulative-effect adjustment to retained earnings as of the date of adoption.
ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (ASU 2017-12)This ASU amends hedge accounting guidance to better align hedge accounting with risk management activities, while reducing the complexity of applying and reporting on hedge accounting. In addition, for a closed pool of prepayable financial assets, entities will be able to hedge an amount that is refining its methodology to estimate the right-of-use assets and lease liabilities. We are also testing system updates and refining internal controls for applying the lease accounting changes. Based upon our current population of leases, we expect the right-of-use asset and corresponding lease liabilitynot expected to be less than 0.5%affected by prepayments, defaults and other events under the “last-of-layer” method. The guidance also permits a one-time reclassification of our total assets.
debt securities eligible to be hedged under the “last-of-layer” method from held to maturity (HTM) to available for sale (AFS) upon adoption.January 1, 2019The Company adopted this ASU on January 1, 2019. As part of its adoption, the Company made a one-time election to reclassify a portion of its HTM securities eligible to be hedged under the “last-of-layer” method to AFS. As of January 1, 2019, the securities reclassified had a fair value of $8.8 billion and resulted in a net of tax increase to AOCI of $19 million. The adoption of this standard had no other impact on the Company’s financial statements.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

New Accounting Standards Not Yet Adopted
StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”Provides guidance for recognizing impairment of most debt instruments measured at amortized cost, including loans and held to maturity (HTM)HTM debt securities. Requires estimating current expected credit losses (CECL) over the remaining life of an instrument or a portfolio of instruments with similar risk characteristics based on relevant information about past events, current conditions, and reasonable forecasts. The initial estimate of, and the subsequent changes in, CECL will be recognized as credit loss expense through current earnings and will be reflected as an allowance for credit losses offsetting the carrying value of the financial instrument(s) on the balance sheet. Amends the OTTI model for available for sale (AFS)AFS debt securities by requiring the use of an allowance, rather than directly reducing the carrying value of the security, and eliminating consideration of the length of time such security has been in an unrealized loss position as a factor in concluding whether a credit loss exists.

Adoption requires a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the entity applies the new guidance except that a prospective transition is required for AFS debt securities for which an OTTI has been recognized prior to the effective date.		January 1, 2020 (early adoption permitted)
The Company continues to evaluate the impact of this guidance on its financial statements, including EPS.statements. The Company has finished the majority ofexpects that its scoping work and assessment of the current state of data and systems. Workallowance for credit losses will increase when CECL is transitioningadopted, primarily due to designing and building out approaches to address certain asset classes with a focus primarilyan incremental allowance that will be recorded on a subset of our securities, includingits HTM corporate debt securities. The incremental allowance at adoption is expected to be immaterial, but the extent of the impact of adoption will depend on, among other things, the economic environment and the size and type of loan and securities portfolios held by the Company expects that aon the date of adoption.
A large portion of itsthe securities in the Company’s portfolio will have zero expectation of credit losses based on industry views and regulator viewsregulatory guidance for U.S. treasuryTreasury and certain government agency-backed securities. We are currently workingFurther, we expect to apply the practical expedient based on in-depth analysiscontinuous collateral replenishment to the Company’s pledged asset lines (PALs) and margin loans.
The Company has substantially developed its credit loss estimation methods for the other asset typessecurities in its portfolio that do not have zero expectation of credit losses, including corporate debt securities and structured products. Our focus during the remainder of 2019 is on continuing the development of policies and processes that will be required to determine ourimplement CECL, testing and validation of credit loss estimation methods, and any needed changes to policies and procedures.performance of CECL parallel runs.

ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”Shortens the amortization period for the premium on certain callable debt securities to the earliest call date. The amendments are applicable to any purchased individual debt security with an explicit and noncontingent call feature with a fixed price on a preset date. ASU 2017-08 does not impact the accounting for callable debt securities held at a discount.

Adoption requires modified retrospective transition as of the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings.		January 1, 2019 (early adoption permitted)
While still under evaluation, the Company does not expect this guidance will have a material impact on its financial statements, including EPS.
    

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

    
StandardDescriptionRequired Date of AdoptionEffects on the Financial Statements or Other Significant Matters
ASU 2018-15, “Intangibles–Goodwill and Other–Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)”

Aligns the criteria for capitalizing implementation costs for cloud computing arrangements (CCA) that are service contracts with internal-use software that is developed or purchased and CCAs that include an internal-use software license. This guidance requires that the capitalized implementation costs be recognized over the period of the CCA service contract, subject to impairment evaluation on an ongoing basis.

The guidance prescribes the balance sheet, income statement, and statement of cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures.

Adoption provides for retrospective or prospective application to all implementation costs incurred after the date of adoption.

January 1, 2020 (early adoption permitted)
Historically, Schwab has expensed implementation costs as they are incurred for CCAs that are service contracts. Therefore, adopting this guidance will change the Company’s accounting treatment for these types of implementation costs. The Company is evaluatingplans to adopt this guidance on a prospective basis and continues to evaluate the impacts of this guidance on its financial statements, including EPS.


The cumulative effect of the changes made to our consolidated January 1, 20182019 balance sheet for the adoption of ASU 2014-09, “Revenue – Revenue from Contracts with Customers” and ASU 2018-02, “Other Comprehensive Income – Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”2016-02, Leases (Topic 842) were as follows:
  Balance at
December 31, 2017		 Adjustments Due to ASU 2014-09 Adjustments Due to ASU 2018-02 Balance at
January 1, 2018
Assets        
Other assets (1)
 $2,057
 $167
 $—
 $2,224
Stockholders’ Equity        
Retained earnings 14,408
 167
 33
 14,608
Accumulated other comprehensive income (152) —
 (33) (185)
  Balance at
December 31, 2018		 Adjustments Due to ASU 2016-02 Balance at
January 1, 2019
Assets      
Other assets (1)
 $2,046
 $588
 $2,634
Liabilities      
Accrued expenses and other liabilities (2)
 $2,954
 $588
 $3,542
(1) AdjustmentThe adoption adjustment is comprised of two parts: 1) an increase in capitalized contractof $596 million for the recognition of the January 1, 2019 ROU asset and 2) an $8 million decrease related to prepaid rent and initial direct costs, which were reclassified to the ROU asset upon adoption of $219 million, partially offset byASU 2016-02.
(2) The adoption adjustment is comprised of two parts: 1) an increase inof $662 million for the recognition of the January 1, 2019 lease liability and 2) a $74 million decrease related to deferred tax liabilitiesrent and lease incentives, which were reclassified to the ROU asset upon adoption of $52 million.ASU 2016-02.

In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our condensed consolidated statement of income and condensed consolidated balance sheet were as follows:
  Three Months Ended September 30, 2018
Statement of Income As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Expenses Excluding Interest      
Compensation and benefits $737
 $744
 $(7)
Taxes on income 296
 294
 2
Net Income 923
 918
 5


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

  Nine Months Ended September 30, 2018
Statement of Income As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Expenses Excluding Interest      
Compensation and benefits $2,252
 $2,279
 $(27)
Taxes on income 780
 773
 7
Net Income 2,572
 2,552
 20

  As of September 30, 2018
Balance Sheet As Reported Balances Without Adoption of ASU 2014-09 Effect of Change
Higher/(Lower)
Assets      
Other assets (1)
 $2,092
 $1,905
 $187
Stockholders’ Equity      
Retained earnings 16,615
 16,428
 187
(1) Adjustment is comprised of an increase in capitalized contract costs of $246 million, partially offset by an increase in deferred tax liabilities of $59 million.


3.    Revenue Recognition
Disaggregated Revenue
Disaggregation of Schwab’s revenue by major source is as follows:
Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended
March 31,
2018 2017 201820172019 2018
Net interest revenue        
Interest revenue$1,755
 $1,176
 $4,766
$3,358
$1,998
 $1,421
Interest expense(228) (94) (569)(223)(317) (158)
Net interest revenue1,527
 1,082
 4,197
3,135
1,681
 1,263
Asset management and administration fees 
  
   
  
Mutual funds and ETF service fees435
 519
 1,386
1,538
Mutual funds, ETFs, and collective trust funds (CTFs) (1)
414
 504
Advice solutions294
 265
 859
765
278
 282
Other(1)80
 77
 229
226
63
 65
Asset management and administration fees809
 861
 2,474
2,529
755
 851
Trading revenue   
     
Commissions155
 136
 501
456
163
 189
Principal transactions21
 15
 56
44
22
 12
Trading revenue176
 151
 557
500
185
 201
Other67
 71
 235
212
102
 83
Total net revenues$2,579
 $2,165
 $7,463
$6,376
$2,723
 $2,398
(1) Beginning in the first quarter of 2019, a change was made to move CTFs from other asset management and administration fees. Prior periods have been recast to reflect this change.

For a summary of revenue provided by our reportable segments, see Note 17.16. The recognition of revenue is not impacted by the operating segment in which revenue is generated.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Net interest revenueContract balances
Net interest revenue, which is generatedReceivables from financial instruments covered by various other areas of GAAP, is notcontracts with customers within the scope of Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers (ASC 606), and is included in the table above in order to reconcile to total net revenues per the condensed consolidated statement of income. Net interest revenue is the difference between interest generated on interest earning assets and interest paid on funding sources. Our primary interest earning assets include cash and cash equivalents; segregated cash and investments; margin loans, which constitute the majority of receivables from brokerage clients; investment securities; and bank loans. Revenue on interest earning assets is affected by various factors, such as the composition of assets, prevailing interest rates at the time of origination or purchase, changes in interest rates on floating rate securities, and changes in prepayment levels for mortgage related securities and loans. Fees earned on securities borrowing and lending activities, which are conducted by CS&Co on assets held in client brokerage accounts, are included in other interest revenue and expense.

Asset management and administration fees

The majority of asset management and administration fees are generated through our proprietary and third-party mutual fund and ETF offerings, as well as fee-based advisory solutions. Mutual fund and ETF service fees are charged for investment management, shareholder, and administration services provided to Schwab Funds® and Schwab ETFs™, as well as recordkeeping, shareholder, and administration services provided to third-party funds. Advice solutions fees are charged for brokerage and asset management services provided to advice solutions clients. Both mutual fund and ETF service fees and advice solutions fees are earned and recognized over time. Fees are generally based on a percentage of the daily value of assets under management and are collected on a monthly or quarterly basis.

Trading revenue

Substantially all trading revenue is generated through commissions earned for executing trades for clients in individual equities, options, fixed income securities, and certain third-party mutual funds and ETFs. This revenue is earned and collected when the trades are executed.

Other revenue
Other revenue includes order flow revenue, other service fees, software fees from our portfolio management solutions, exchange processing fees, and nonrecurring gains. Generally, the most significant portion of other revenue is order flow revenue, which are payments received from execution venues to which CS&Co sends equity and option orders. Order flow revenue is recognized when the trades are executed.

Capitalized contract costs
Deferred contract costs relate to sales commissions paid to employees for obtaining contracts with clients and are included in other assets on the condensed consolidated balance sheets. These costs are amortized to expense on a straight-line basis over a period that is consistent with how the related revenue is recognized. At September 30, 2018 and January 1, 2018, we had $246 million and $219 million of deferred contract costs, respectively. Amortization expense related to deferred contract costs was $12 million and $34 million for the third quarter and first nine months of 2018, respectively, which was recorded in compensation and benefits expense on the condensed consolidated statements of income.

Contract balances
Receivables from contracts with customers within the scope of ASC 606 were $353$315 million at January 1, 2018March 31, 2019 and $359$307 million at September 30,December 31, 2018 and were recorded in other assets on the condensed consolidated balance sheets. Schwab does not have any other significant contract assets or contract liability balances as of September 30, 2018 and January 1, 2018.March 31, 2019.

Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to an elective practical expedient under ASC 606. The practical expedient applies to and is elected for contracts where we recognize revenue at the amount to which we have the right to invoice for services performed.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

4.    Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of AFS and HTM securities are as follows:
September 30, 2018 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
March 31, 2019 Amortized
Cost		 Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair
Value
Available for sale securities                
U.S. agency mortgage-backed securities $24,010
 $47
 $102
 $23,955
 $31,010
 $154
 $72
 $31,092
U.S. Treasury securities 12,412
 —
 169
 12,243
 10,343
 1
 69
 10,275
Asset-backed securities (1)
 9,378
 19
 10
 9,387
 8,423
 22
 6
 8,439
Corporate debt securities (2)
 6,921
 10
 9
 6,922
 6,499
 37
 4
 6,532
Certificates of deposit 2,765
 4
 —
 2,769
 3,138
 8
 —
 3,146
U.S. agency notes 1,688
 —
 6
 1,682
 250
 —
 1
 249
Commercial paper (2,3)
 518
 —
 —
 518
 209
 —
 —
 209
Foreign government agency securities 50
 —
 2
 48
 50
 —
 —
 50
Non-agency commercial mortgage-backed securities 34
 —
 —
 34
 13
 —
 —
 13
Total available for sale securities $57,776
 $80
 $298
 $57,558
 $59,935
 $222
 $152
 $60,005
Held to maturity securities                
U.S. agency mortgage-backed securities $113,453
 $26
 $3,483
 $109,996
 $106,532
 $536
 $1,146
 $105,922
Asset-backed securities (1)
 17,964
 122
 12
 18,074
 18,465
 67
 27
 18,505
Corporate debt securities (2)
 4,578
 8
 55
 4,531
 4,479
 12
 14
 4,477
U.S. state and municipal securities 1,330
 6
 7
 1,329
 1,313
 69
 —
 1,382
Non-agency commercial mortgage-backed securities 1,149
 1
 25
 1,125
 1,145
 10
 5
 1,150
U.S. Treasury securities 223
 —
 11
 212
 223
 —
 2
 221
Certificates of deposit 200
 1
 —
 201
 200
 1
 —
 201
Foreign government agency securities 50
 —
 2
 48
 50
 —
 1
 49
Other 5
 —
 —
 5
 13
 —
 —
 13
Total held to maturity securities $138,952
 $164
 $3,595
 $135,521
 $132,420
 $695
 $1,195
 $131,920
December 31, 2017        
December 31, 2018        
Available for sale securities                 
U.S. agency mortgage-backed securities $20,915
 $53
 $39
 $20,929
 $25,594
 $44
 $82
 $25,556
U.S. Treasury securities 9,583
 —
 83
 9,500
 18,410
 —
 108
 18,302
Asset-backed securities (1)
 9,019
 34
 6
 9,047
 10,086
 14
 15
 10,085
Corporate debt securities (2)
 6,154
 16
 1
 6,169
 7,477
 10
 20
 7,467
Certificates of deposit 2,040
 2
 1
 2,041
 3,682
 4
 1
 3,685
U.S. agency notes 1,914
 —
 8
 1,906
 900
 —
 2
 898
Commercial paper (2)
 313
 —
 —
 313
Commercial paper (2,3)
 522
 —
 —
 522
Foreign government agency securities 51
 —
 1
 50
 50
 —
 1
 49
Non-agency commercial mortgage-backed securities 40
 —
 —
 40
 14
 —
 —
 14
Total available for sale securities $50,029
 $105
 $139
 $49,995
 $66,735
 $72
 $229
 $66,578
Held to maturity securities                
U.S. agency mortgage-backed securities $101,197
 $290
 $1,034
 $100,453
 $118,064
 $217
 $2,188
 $116,093
Asset-backed securities (1)
 12,937
 127
 2
 13,062
 18,502
 83
 39
 18,546
Corporate debt securities (2)
 4,078
 13
 5
 4,086
 4,477
 2
 47
 4,432
U.S. state and municipal securities 1,247
 57
 —
 1,304
 1,327
 24
 3
 1,348
Non-agency commercial mortgage-backed securities 994
 10
 5
 999
 1,156
 3
 17
 1,142
U.S. Treasury securities 223
 —
 3
 220
 223
 —
 6
 217
Certificates of deposit 200
 —
 —
 200
 200
 1
 —
 201
Foreign government agency securities 50
 —
 1
 49
 50
 —
 1
 49
Other 10
 —
 —
 10
Total held to maturity securities $120,926
 $497
 $1,050
 $120,373
 $144,009
 $330
 $2,301
 $142,038
(1) Approximately 37%39% and 42%36% of asset-backed securities held as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, were Federal Family Education Loan Program Asset-Backed Securities. Asset-backed securities collateralized by credit card receivables represented approximately 43%41% and 40%42% of the asset-backed securities held as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
(2) As of September 30, 2018March 31, 2019 and December 31, 2017,2018, approximately 31%25% and 41%26%, respectively, of the total AFS and HTM investments in corporate debt securities and commercial paper were issued by institutions in the financial services industry. Approximately 18%14% and 22%18% of the holdings of these securities were issued by institutions in the information technology industry as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
(3) Included in cash and cash equivalents on the condensed consolidated balance sheet,sheets, but excluded from this table is $2.0$4.3 billion and $4.9 billion of AFS commercial paper.paper as of March 31, 2019 and December 31, 2018, respectively. These holdings have maturities of three months or less and an aggregate market value equal to amortized cost.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

On January 1, 2019 the Company transferred certain U.S. agency mortgage-backed securities with a fair value of $8.8 billion from the HTM category to the AFS category as permitted by ASU 2017-12. For additional information on the transfer, see Notes 2 and 14.

At September 30, 2018, certainMarch 31, 2019, our banking subsidiaries had pledged securities with a fair value of $21.5$27.9 billion as collateral to secure borrowing capacity on secured credit facilities with the FHLB (see Note 8). WeCertain banking subsidiaries also pledge certain investment securities as collateral to secure borrowing capacity at the Federal Reserve Bank discount window, and had pledged securities with a fair value of $2.4$8.4 billion as collateral for this facility at September 30, 2018.March 31, 2019. CSB also pledges securities issued by federal agencies to secure certain trust deposits. The fair value of these pledged securities was $898$916 million at September 30, 2018.March 31, 2019.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Securities with unrealized losses, aggregated by category and period of continuous unrealized loss, are as follows:
Less than 12 months    Less than 12 months    
12 months or longer Total12 months or longer Total
September 30, 2018Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
March 31, 2019Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses		 Fair
Value		 Unrealized
Losses
Available for sale securities                      
U.S. agency mortgage-backed securities$10,119
 $68
 $1,988
 $34
 $12,107
 $102
$9,897
 $40
 $5,204
 $32
 $15,101
 $72
U.S. Treasury securities7,770
 72
 4,374
 97
 12,144
 169
1,139
 1
 8,509
 68
 9,648
 69
Asset-backed securities1,841
 4
 601
 6
 2,442
 10
1,586
 1
 761
 5
 2,347
 6
Corporate debt securities3,030
 8
 229
 1
 3,259
 9
802
 2
 544
 2
 1,346
 4
U.S. agency notes566
 2
 1,116
 4
 1,682
 6
—
 —
 249
 1
 249
 1
Foreign government agency securities—
 —
 48
 2
 48
 2
Total$23,326
 $154
 $8,356
 $144
 $31,682
 $298
$13,424
 $44
 $15,267
 $108
 $28,691
 $152
Held to maturity securities 
  
  
  
  
  
 
  
  
  
  
  
U.S. agency mortgage-backed securities$59,643
 $1,247
 $40,279
 $2,236
 $99,922
 $3,483
$6,515
 $28
 $64,563
 $1,118
 $71,078
 $1,146
Asset-backed securities2,115
 12
 39
 —
 2,154
 12
7,285
 25
 376
 2
 7,661
 27
Corporate debt securities2,862
 52
 77
 3
 2,939
 55
743
 4
 2,383
 10
 3,126
 14
U.S. state and municipal securities471
 5
 14
 2
 485
 7
Non-agency commercial mortgage-backed securities651
 15
 279
 10
 930
 25
—
 —
 697
 5
 697
 5
U.S. Treasury securities—
 —
 212
 11
 212
 11
—
 —
 221
 2
 221
 2
Foreign government agency securities—
 —
 48
 2
 48
 2
—
 —
 50
 1
 50
 1
Total$65,742
 $1,331
 $40,948
 $2,264
 $106,690
 $3,595
$14,543
 $57
 $68,290
 $1,138
 $82,833
 $1,195
Total securities with unrealized losses (1)
$89,068
 $1,485
 $49,304
 $2,408
 $138,372
 $3,893
$27,967
 $101
 $83,557
 $1,246
 $111,524
 $1,347
December 31, 2018           
Available for sale securities            
U.S. agency mortgage-backed securities$9,529
 $32
 $4,257
 $50
 $13,786
 $82
U.S. Treasury securities4,951
 6
 7,037
 102
 11,988
 108
Asset-backed securities4,050
 9
 837
 6
 4,887
 15
Corporate debt securities3,561
 19
 254
 1
 3,815
 20
Certificates of deposit1,217
 1
 150
 —
 1,367
 1
U.S. agency notes195
 —
 304
 2
 499
 2
Foreign government agency securities—
 —
 49
 1
 49
 1
Total$23,503
 $67
 $12,888
 $162
 $36,391
 $229
Held to maturity securities 
  
  
  
  
  
U.S. agency mortgage-backed securities$29,263
 $222
 $56,435
 $1,966
 $85,698
 $2,188
Asset-backed securities6,795
 35
 376
 4
 7,171
 39
Corporate debt securities2,909
 29
 1,066
 18
 3,975
 47
U.S. state and municipal securities77
 2
 18
 1
 95
 3
Non-agency commercial mortgage-backed securities283
 2
 632
 15
 915
 17
U.S. Treasury securities—
 —
 218
 6
 218
 6
Foreign government agency securities—
 —
 49
 1
 49
 1
Total$39,327
 $290
 $58,794
 $2,011
 $98,121
 $2,301
Total securities with unrealized losses (2)
$62,830
 $357
 $71,682
 $2,173
 $134,512
 $2,530
December 31, 2017           
Available for sale securities            
U.S. agency mortgage-backed securities$5,696
 $21
 $2,548
 $18
 $8,244
 $39
U.S. Treasury securities4,625
 11
 4,875
 72
 9,500
 83
Asset-backed securities904
 3
 424
 3
 1,328
 6
Corporate debt securities736
 1
 120
 —
 856
 1
Certificates of deposit799
 1
 —
 —
 799
 1
U.S. agency notes99
 —
 1,807
 8
 1,906
 8
Foreign government agency securities50
 1
 —
 —
 50
 1
Total$12,909
 $38
 $9,774
 $101
 $22,683
 $139
Held to maturity securities 
  
  
  
  
  
U.S. agency mortgage-backed securities$42,102
 $310
 $24,753
 $724
 $66,855
 $1,034
Asset-backed securities1,124
 2
 72
 —
 1,196
 2
Corporate debt securities1,078
 5
 —
 —
 1,078
 5
Non-agency commercial mortgage-backed securities607
 5
 —
 —
 607
 5
U.S. Treasury securities220
 3
 —
 —
 220
 3
Foreign government agency securities49
 1
 —
 —
 49
 1
Total$45,180
 $326
 $24,825
 $724
 $70,005
 $1,050
Total securities with unrealized losses (2)
$58,089
 $364
 $34,599
 $825
 $92,688
 $1,189
(1) The number of investment positions with unrealized losses totaled 413412 for AFS securities and 1,8001,302 for HTM securities.
(2) The number of investment positions with unrealized losses totaled 251441 for AFS securities and 9381,524 for HTM securities.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

At September 30, 2018,March 31, 2019, substantially all rated securities in the investment portfolios were rated investment grade. U.S. agency mortgage-backed securities do not have explicit credit ratings; however, management considers these to be of the highest credit quality and rating given the guarantee of principal and interest by the U.S. government or U.S. government-sponsored enterprises.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Management evaluates whether investment securities are other-than-temporarily impaired (OTTI) on a quarterly basis as described in Note 2 in the 20172018 Form 10-K. No amounts were recognized as OTTI in earnings or other comprehensive income in 2018during the three months ended March 31, 2019 or 2017.the year ended December 31, 2018. As of September 30, 2018March 31, 2019 and December 31, 2017,2018, Schwab did not hold any securities on which OTTI was previously recognized.

In the table below, mortgage-backed securities have been allocated to maturity groupings based on final contractual maturities. As borrowers may have the right to call or prepay certain obligations underlying our investment securities, actual maturities may differ from the scheduled contractual maturities presented below.

The maturities of AFS and HTM securities are as follows:
September 30, 2018 Within
1 year		 After 1 year
through
5 years		 After 5 years
through
10 years		 After
10 years		 Total
Available for sale securities          
U.S. agency mortgage-backed securities (1)
 $169
 $3,669
 $10,571
 $9,546
 $23,955
U.S. Treasury securities 5,999
 6,244
 —
 —
 12,243
Asset-backed securities 250
 6,968
 1,750
 419
 9,387
Corporate debt securities 1,621
 5,301
 —
 —
 6,922
Certificates of deposit 866
 1,903
 —
 —
 2,769
U.S. agency notes 1,311
 371
 —
 —
 1,682
Commercial paper 518
 —
 —
 —
 518
Foreign government agency securities —
 48
 —
 —
 48
Non-agency commercial mortgage-backed securities (1)
 —
 —
 —
 34
 34
Total fair value $10,734
 $24,504
 $12,321
 $9,999
 $57,558
Total amortized cost $10,762
 $24,632
 $12,368
 $10,014
 $57,776
Held to maturity securities          
U.S. agency mortgage-backed securities (1)
 $383
 $14,370
 $31,785
 $63,458
 $109,996
Asset-backed securities 5
 1,611
 9,373
 7,085
 18,074
Corporate debt securities 238
 3,550
 743
 —
 4,531
U.S. state and municipal securities —
 59
 254
 1,016
 1,329
Non-agency commercial mortgage-backed securities (1)
 —
 353
 —
 772
 1,125
U.S. Treasury securities —
 —
 212
 —
 212
Certificates of deposit —
 201
 —
 —
 201
Foreign government agency securities —
 48
 —
 —
 48
Other —
 —
 —
 5
 5
Total fair value $626
 $20,192
 $42,367
 $72,336
 $135,521
Total amortized cost $628
 $20,540
 $43,339
 $74,445
 $138,952
(1) Mortgage-backed securities have been allocated to maturity groupings based on final contractual maturities. Actual maturities will differ from final contractual maturities because borrowers on a certain portion of loans underlying these securities have the right to prepay their obligations.
March 31, 2019 Within
1 year		 After 1 year
through
5 years		 After 5 years
through
10 years		 After
10 years		 Total
Available for sale securities          
U.S. agency mortgage-backed securities $96
 $2,434
 $12,315
 $16,247
 $31,092
U.S. Treasury securities 6,289
 3,986
 —
 —
 10,275
Asset-backed securities 5
 7,284
 841
 309
 8,439
Corporate debt securities 1,471
 5,061
 —
 —
 6,532
Certificates of deposit 1,439
 1,707
 —
 —
 3,146
U.S. agency notes 249
 —
 —
 —
 249
Commercial paper 209
 —
 —
 —
 209
Foreign government agency securities —
 50
 —
 —
 50
Non-agency commercial mortgage-backed securities —
 —
 —
 13
 13
Total fair value $9,758
 $20,522
 $13,156
 $16,569
 $60,005
Total amortized cost $9,773
 $20,516
 $13,179
 $16,467
 $59,935
Held to maturity securities          
U.S. agency mortgage-backed securities $205
 $15,176
 $32,437
 $58,104
 $105,922
Asset-backed securities —
 2,362
 8,896
 7,247
 18,505
Corporate debt securities 705
 3,180
 592
 —
 4,477
U.S. state and municipal securities —
 92
 345
 945
 1,382
Non-agency commercial mortgage-backed securities —
 362
 —
 788
 1,150
U.S. Treasury securities —
 —
 221
 —
 221
Certificates of deposit 201
 —
 —
 —
 201
Foreign government agency securities —
 49
 —
 —
 49
Other —
 —
 —
 13
 13
Total fair value $1,111
 $21,221
 $42,491
 $67,097
 $131,920
Total amortized cost $1,114
 $21,212
 $42,433
 $67,661
 $132,420

Proceeds and gross realized gains and losses from sales of AFS securities are as follows:
 Three Months Ended
September 30,		 Nine Months Ended
September 30,		 Three Months Ended
March 31,
  
 2018 2017 2018 2017 2019 2018
Proceeds $—
 $288
 $115
 $5,773
 $10,652
 $—
Gross realized gains —
 —
 —
 7
 3
 —
Gross realized losses 2
 —



CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

5.    Bank Loans and Related Allowance for Loan Losses
The composition of bank loans and delinquency analysis by loan type is as follows:
September 30, 2018Current30-59 days
past due		60-89 days
past due
>90 days past
due and other
nonaccrual loans (3)
Total past due
and other
nonaccrual loans		Total
loans		Allowance
for loan
losses		Total
bank
loans – net
March 31, 2019Current30-59 days
past due		60-89 days
past due
>90 days past
due and other
nonaccrual loans (3)
Total past due
and other
nonaccrual loans		Total
loans		Allowance
for loan
losses		Total
bank
loans – net
First Mortgages (1,2)
$10,217
$24
$2
$13
$39
$10,256
$17
$10,239
$10,354
$22
$—
$14
$36
$10,390
$14
$10,376
HELOCs (1,2)
1,589
2
1
10
13
1,602
7
1,595
1,380
4
2
8
14
1,394
5
1,389
Pledged asset lines4,552
3
1
—
4
4,556
—
4,556
4,571
4
1
—
5
4,576
—
4,576
Other176
—
—
—
—
176
2
174
171
—
—
—
—
171
2
169
Total bank loans$16,534
$29
$4
$23
$56
$16,590
$26
$16,564
$16,476
$30
$3
$22
$55
$16,531
$21
$16,510
  
December 31, 2017 
December 31, 2018 
First Mortgages (1,2)
$9,983
$14
$2
$17
$33
$10,016
$16
$10,000
$10,349
$21
$2
$12
$35
$10,384
$14
$10,370
HELOCs (1,2)
1,928
—
3
12
15
1,943
8
1,935
1,493
3
1
8
12
1,505
5
1,500
Pledged asset lines4,361
4
4
—
8
4,369
—
4,369
4,558
3
—
—
3
4,561
—
4,561
Other176
—
—
—
—
176
2
174
180
—
—
—
—
180
2
178
Total bank loans$16,448
$18
$9
$29
$56
$16,504
$26
$16,478
$16,580
$27
$3
$20
$50
$16,630
$21
$16,609
(1) First Mortgages and HELOCs include unamortized premiums and discounts and direct origination costs of $72 million and $73 million and $77 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
(2) At September 30, 2018March 31, 2019 and December 31, 2017,2018, 47% and 48%, respectively, of the First Mortgage and HELOC portfolios were concentrated in California. These loans have performed in a manner consistent with the portfolio as a whole.
(3) There were no loans accruing interest that were contractually 90 days or more past due at September 30, 2018March 31, 2019 or December 31, 2017.2018.

At September 30, 2018,March 31, 2019, CSB had pledged $11.1$10.9 billion of First Mortgages and HELOCs as collateral to secure borrowing capacity on a secured credit facility with the FHLB (see Note 8).

Substantially all of the bank loans were collectively evaluated for impairment at September 30, 2018both March 31, 2019 and December 31, 2017.2018.

Changes in the allowance for loan losses were as follows:
  September 30, 2018 September 30, 2017
Three Months Ended First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
Balance at beginning of period $17
 $7
 $2
 $26
 $17
 $8
 $1
 $26
Charge-offs —
 —
 —
 —
 (1) —
 —
 (1)
Recoveries —
 1
 —
 1
 —
 —
 1
 1
Provision for loan losses —
 (1) —
 (1) —
 —
 —
 —
Balance at end of period $17
 $7
 $2
 $26
 $16
 $8
 $2
 $26
Nine Months Ended                
 March 31, 2019 March 31, 2018
Three Months Ended First Mortgages HELOCs Other 
Total (1)
 First Mortgages HELOCs Other 
Total (1)
Balance at beginning of period $16
 $8
 $2
 $26
 $17
 $8
 $1
 $26
 $14
 $5
 $2
 $21
 $16
 $8
 $2
 $26
Charge-offs —
 —
 (1) (1) (2) (1) —
 (3) —
 —
 —
 —
 —
 —
 —
 —
Recoveries —
 2
 —
 2
 1
 1
 1
 3
 —
 1
 —
 1
 —
 —
 —
 —
Provision for loan losses 1
 (3) 1
 (1) —
 —
 —
 —
 —
 (1) —
 (1) 1
 (1) 1
 1
Balance at end of period $17
 $7
 $2
 $26
 $16
 $8
 $2
 $26
 $14
 $5
 $2
 $21
 $17
 $7
 $3
 $27
(1) All pledged asset lines (PALs) were fully collateralized by securities with fair values in excess of borrowings at September 30, 2018 and December 31, 2017.as of each period presented.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

A summary of impaired bank loan-related assets is as follows:
 September 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Nonaccrual loans (1)
 $23
 $28
 $22
 $21
Other real estate owned (2)
 3
 3
 4
 3
Total nonperforming assets 26
 31
 26
 24
Troubled debt restructurings 4
 11
 3
 4
Total impaired assets $30
 $42
 $29
 $28
(1) Nonaccrual loans include nonaccrual troubled debt restructurings.
(2) Included in other assets on the condensed consolidated balance sheets.

Credit Quality
In addition to monitoring delinquency, Schwab monitors the credit quality of First Mortgages and HELOCs by stratifying the portfolios by the following:
Year of origination;
Borrower FICO scores at origination (Origination FICO);
Updated borrower FICO scores (Updated FICO);
Loan-to-value (LTV) ratios at origination (Origination LTV); and
Estimated current LTV ratios (Estimated Current LTV).
Borrowers’ FICO scores are provided by an independent third-party credit reporting service and updated quarterly. The Origination LTV and Estimated Current LTV for a HELOC include any first lien mortgage outstanding on the same property at the time of the HELOC’s origination. The Estimated Current LTV for each loan is updated on a monthly basis by reference to a home price appreciation index.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The credit quality indicators of the Company’s bank loan portfolio are detailed below:
September 30, 2018 Balance Weighted Average
Updated FICO		 
Utilization
Rate (1)
 Percent of
Loans that are on
Nonaccrual Status
March 31, 2019 Balance Weighted Average
Updated FICO		 Percent of
Loans that are on
Nonaccrual Status
First Mortgages              
Estimated Current LTV              
<70%
 $9,383
 777
 N/A
 0.05% $9,322
 777
 0.07%
>70% – <90%
 868
 771
 N/A
 0.24% 1,065
 771
 0.33%
>90% – <100%
 4
 713
 N/A
 8.70% 2
 691
 —
>100% 1
 742
 N/A
 —
 1
 756
 —
Total $10,256
 776
 N/A
 0.07% $10,390
 776
 0.09%
HELOCs              
Estimated Current LTV (2)(1)
              
<70%
 $1,509
 771
 31% 0.18% $1,302
 770
 0.18%
>70% – <90%
 84
 752
 47% 0.90% 83
 752
 0.94%
>90% – <100%
 5
 746
 77% 0.90% 6
 739
 0.49%
>100% 4
 704
 81% 5.28% 3
 695
 5.98%
Total $1,602
 770
 31% 0.24% $1,394
 769
 0.23%
Pledged asset lines      
  
      
Weighted-Average LTV (2)(1)
      
  
      
=70% $4,556
 766
 36% —
 $4,576
 765
 —
December 31, 2017 Balance Weighted Average
Updated FICO		 
Utilization
Rate (1)
 Percent of
Loans that are on
Nonaccrual Status
December 31, 2018 Balance Weighted Average
Updated FICO		 Percent of
Loans that are on
Nonaccrual Status
First Mortgages              
Estimated Current LTV              
<70%
 $9,046
 775
 N/A
 0.09% $9,396
 776
 0.04%
>70% – <90%
 961
 769
 N/A
 0.46% 985
 769
 0.41%
>90% – <100%
 5
 714
 N/A
 10.49% 2
 717
 —
>100% 4
 713
 N/A
 6.23% 1
 753
 —
Total $10,016
 775
 N/A
 0.14% $10,384
 775
 0.07%
HELOCs              
Estimated Current LTV (2)(1)
              
<70%
 $1,773
 772
 32% 0.18% $1,416
 770
 0.13%
>70% – <90%
 148
 755
 47% 0.84% 80
 752
 0.60%
>90% – <100%
 14
 742
 64% 2.85% 6
 729
 3.36%
>100% 8
 718
 72% 4.91% 3
 702
 —
Total $1,943
 770
 33% 0.27% $1,505
 769
 0.17%
Pledged asset lines              
Weighted-Average LTV (2)(1)
              
=70% $4,369
 765
 41% —
 $4,561
 766
 —
(1)The Utilization Rate is calculated using the outstanding balance divided by the associated total line of credit.
(2) Represents the LTV for the full line of credit (drawn and undrawn).
N/A Not applicable.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

September 30, 2018 First Mortgages HELOCs
March 31, 2019 First Mortgages HELOCs
Year of origination    
    
Pre-2014 $2,144
 $1,156
2014 436
 93
Pre-2015 $2,202
 $1,036
2015 1,087
 110
 1,007
 98
2016 2,662
 96
 2,539
 90
2017 2,420
 101
 2,319
 96
2018 1,507
 46
 1,941
 68
2019 382
 6
Total $10,256
 $1,602
 $10,390
 $1,394
Origination FICO  
  
  
  
<620 $5
 —
 $4
 $—
620 – 679 83
 8
 80
 7
680 – 739 1,595
 305
 1,629
 267
>740
 8,573
 1,289
 8,677
 1,120
Total $10,256
 $1,602
 $10,390
 $1,394
Origination LTV        
<70%
 $7,737
 $1,127
 $7,817
 $987
>70% – <90%
 2,514
 468
 2,568
 401
>90% – <100%
 5
 7
 5
 6
Total $10,256
 $1,602
 $10,390
 $1,394

December 31, 2017 First Mortgages HELOCs
December 31, 2018 First Mortgages HELOCs
Year of origination    
    
Pre-2014 $2,804
 $1,496
2014 530
 116
Pre-2015 $2,387
 $1,140
2015 1,218
 128
 1,050
 106
2016 2,886
 111
 2,606
 95
2017 2,578
 92
 2,366
 99
2018 1,975
 65
Total $10,016
 $1,943
 $10,384
 $1,505
Origination FICO  
  
  
  
<620 $6
 $1
 $5
 $—
620 – 679 89
 10
 83
 8
680 – 739 1,569
 365
 1,626
 282
>740
 8,352
 1,567
 8,670
 1,215
Total $10,016
 $1,943
 $10,384
 $1,505
Origination LTV  
  
  
  
<70%
 $7,569
 $1,360
 $7,815
 $1,064
>70% – <90%
 2,441
 574
 2,564
 434
>90% – <100%
 6
 9
 5
 7
Total $10,016
 $1,943
 $10,384
 $1,505
At September 30, 2018,March 31, 2019, First Mortgage loans of $9.3$9.4 billion had adjustable interest rates. TheseSubstantially all of these mortgages have initial fixed interest rates for three to ten years and interest rates that adjust annually thereafter. Approximately 31%30% of the balance of these mortgages consisted of loans with interest-only payment terms. The interest rates on approximately 64%65% of the balance of these interest-only loans are not scheduled to reset for three or more years. Schwab’s mortgage loans do not include interest terms described as temporary introductory rates below current market rates.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The HELOC product has a 30-year loan term with an initial draw period of ten years from the date of origination. After the initial draw period, the balance outstanding at such time is converted to a 20-year amortizing loan. The interest rate during the initial draw period and the 20-year amortizing period is a floating rate based on the prime rate plus a margin. HELOCs that convert to an amortizing loan may experience higher delinquencies, and higher loss rates, than those in the initial draw period. The allowance for loan loss methodology takes this increased inherent risk into consideration. 
The following table presents when current outstanding HELOCs will convert to amortizing loans:
September 30, 2018 Balance
March 31, 2019 Balance
Converted to an amortizing loan by period end $640
 $640
Within 1 year 186
 66
> 1 year – 3 years 133
 98
> 3 years – 5 years 163
 173
> 5 years 480
 417
Total $1,602
 $1,394
At September 30, 2018, $1.3March 31, 2019, $1.1 billion of the HELOC portfolio was secured by second liens on the associated properties. Second lien mortgage loans typically possess a higher degree of credit risk given the subordination to the first lien holder in the event of default. In addition to the credit monitoring activities described previously, Schwab also monitors credit risk by reviewing the delinquency status of the first lien loan on the associated property. At September 30, 2018,March 31, 2019, the borrowers on approximately 54%51% of HELOC loan balances outstanding only paid the minimum amount due.


6.    Variable Interest Entities
As of September 30, 2018March 31, 2019 and December 31, 2017,2018, all of Schwab’s involvement with variable interest entities (VIEs) is through CSB’s Community Reinvestment Act-related investments and most of those are related to Low-Income Housing Tax Credit (LIHTC) investments. As part of CSB’s community reinvestment initiatives, CSB generally invests with other institutional investors in funds that make equity investments in multifamily affordable housing properties. CSB receives tax credits and other tax benefits for these investments. CSB’s LIHTC investments are accounted for using the proportional amortization method, which amortizes the cost of the investment over the period in which the investor expects to receive tax credits and other tax benefits, and the resulting amortization is included in taxes on income on the consolidated statements of income.
Aggregate assets, liabilities and maximum exposure to loss
The aggregate assets, liabilities, and maximum exposure to loss from those VIEs in which Schwab holds a variable interest, but is not the primary beneficiary, are summarized in the table below:
 September 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss		 Aggregate
assets		 Aggregate
liabilities		 Maximum
exposure
to loss
LIHTC investments (1)
 $347
 $204
 $347
 $304
 $203
 $304
 $406
 $200
 $406
 $338
 $188
 $338
Other CRA investments (2)
 68
 —
 116
 69
 —
 125
 77
 —
 124
 70
 —
 124
Total $415
 $204
 $463
 $373
 $203
 $429
 $483
 $200
 $530
 $408
 $188
 $462
(1) Aggregate assets and aggregate liabilities are included in other assets and accrued expenses and other liabilities, respectively, on the condensed consolidated balance sheets.
(2) Other CRA investments are recorded using either the adjusted cost method, equity method, or as HTM securities. Aggregate assets are included in HTM securities, bank loans – net, or other assets on the condensed consolidated balance sheets.

Schwab’s maximum exposure to loss would result from the loss of the investments, including any committed amounts. During the ninethree months ended September 30,March 31, 2019 and year ended December 31, 2018, and 2017, Schwab did not provide or intend to provide financial or other support to the VIEs that it was not contractually required to provide. CSB’s funding of these remaining commitments is dependent upon the occurrence of certain conditions, and CSB expects to pay substantially all of these commitments between 20182019 and 2021.2022.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

7.    Bank Deposits

Bank deposits consist of interest-bearing and non-interest-bearing deposits as follows:

 September 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Interest-bearing deposits:        
Deposits swept from brokerage accounts $194,337
 $148,212
 $200,337
 $212,311
Checking 12,230
 13,388
 12,661
 12,523
Savings and other 6,153
 7,264
 5,577
 5,827
Total interest-bearing deposits 212,720
 168,864
 218,575
 230,661
Non-interest-bearing deposits 688
 792
 879
 762
Total bank deposits $213,408
 $169,656
 $219,454
 $231,423


8.    Borrowings

CSC’s Senior Notes are unsecured obligations and rank equally with the other unsecured senior debt. CSC may redeem some or all of the Senior Notes of each series prior to their maturity, subject to certain restrictions, and the payment of an applicable make-whole premium in certain instances. Interest is payable semi-annually for the fixed-rate Senior Notes and quarterly for the floating-rate Senior Notes. The following table lists long-term debt by instrument outstanding as of September 30, 2018March 31, 2019 and December 31, 2017.2018:
Date ofPrincipal Amount OutstandingDate ofPrincipal Amount Outstanding

IssuanceSeptember 30, 2018December 31, 2017IssuanceMarch 31, 2019December 31, 2018
Fixed-rate Senior Notes:    
1.500% due March 10, 2018 (1)
03/10/15$—
$625
2.200% due July 25, 2018 (2)
07/25/13—
275
4.450% due July 22, 202007/22/10700
700
07/22/10$700
$700
3.250% due May 21, 202105/22/18600
—
05/22/18600
600
3.225% due September 1, 202208/29/12256
256
08/29/12256
256
2.650% due January 25, 202312/07/17800
800
12/07/17800
800
3.550% due February 1, 202410/31/18500
500
3.000% due March 10, 202503/10/15375
375
03/10/15375
375
3.850% due May 21, 202505/22/18750
—
05/22/18750
750
3.450% due February 13, 202611/13/15350
350
11/13/15350
350
3.200% due March 2, 202703/02/17650
650
03/02/17650
650
3.200% due January 25, 202812/07/17700
700
12/07/17700
700
4.000% due February 1, 202910/31/18600
600
Floating-rate Senior Notes:    
Three-month LIBOR + 0.32% due May 21, 202105/22/18600
—
05/22/18600
600
Total Senior Notes 5,781
4,731
 6,881
6,881
5.450% Finance lease obligation (3)(1)
06/04/0455
61
06/04/04—
52
Unamortized discount — net (13)(14) (14)(15)
Debt issuance costs (33)(25) (38)(40)
Total long-term debt $5,790
$4,753
 $6,829
$6,878
(1) Redeemed on February 8, 2018.
(2) Redeemed on June 25, 2018.
(3) Schwab has aThe finance lease obligation related towas extinguished through an office building and land under a 20-year lease. The remaining finance lease obligation is being reduced by a portionassignment agreement during the first quarter of the lease payments over the remaining lease term through June 30, 2024.2019.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Annual maturities on long-term debt outstanding at September 30, 2018March 31, 2019 are as follows:
MaturitiesMaturities
2018$2
20198
$—
2020709
700
20211,209
1,200
2022266
256
2023800
Thereafter3,642
3,925
Total maturities5,836
6,881
Unamortized discount — net(13)(14)
Debt issuance costs(33)(38)
Total long-term debt$5,790
$6,829
Short-term borrowings: CertainOur banking subsidiaries maintain secured credit facilities with the FHLB. Amounts available under these facilities are dependent on the valueamount of our First Mortgages, HELOCs, and the fair value of certain of their investment securities that are pledged as collateral. As of September 30,March 31, 2019 and December 31, 2018, the collateral pledged provided a total borrowing capacity of $30.0$36.1 billion and $35.5 billion, respectively, of which no amounts were outstanding. Asoutstanding at the end of December 31, 2017, the collateral pledged by CSB provided a total borrowing capacity of $32.3 billion, of which $15.0 billion was outstanding.either period.
As a condition of the FHLB borrowings, we are required to hold FHLB stock, which was recorded in other assets on the condensed consolidated balance sheets. The investment in FHLB was $32$34 million at September 30, 2018March 31, 2019 and $405$32 million at December 31, 2017.2018.


9.    Leases

The Company has operating leases for corporate offices, branch locations, and server equipment and determines if an arrangement is a lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The lease liability may include payments that depend on a rate or index (such as the Consumer Price Index), measured using the rate or index at the commencement date. Payments that vary because of changes in facts or circumstances occurring after the commencement date are considered variable. These payments are not recognized as part of the lease liability and are expensed in the period incurred. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
We have lease agreements with lease and non-lease components. For the majority of our leases (real estate leases), the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. We have not elected the practical expedient for equipment leases and account for lease and non-lease components separately for those classes of leases.
As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our lease terms may include periods covered by options to extend when it is reasonably certain that we will exercise those options. The lease terms may also include periods covered by options to terminate when it is reasonably certain that we will not exercise that option.
Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company does not have any finance leases and had an immaterial amount of sublease income for all periods presented.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The following table details the amounts and locations of lease assets and liabilities on the condensed consolidated balance sheet:
LeasesBalance Sheet ClassificationMarch 31, 2019
Assets  
Operating lease assetsOther assets$597
Liabilities 

Operating lease liabilitiesAccrued expenses and other liabilities$663
The components of lease expense are as follows:
 Three Months Ended
Lease CostMarch 31, 2019
Operating lease cost (1)
$33
Variable lease cost (2)
$11
(1) Includes short-term leases, which are immaterial.
(2) Includes payments that are entirely variable and amounts that represent the difference between payments based on an index or rate that would be reflected in the lease liability and what is actually incurred.

The following tables present supplemental lease information as of March 31, 2019:
Lease Term and Discount Rate
Weighted-average remaining lease term (years)7.33
Weighted-average discount rate3.51%

Maturity of Lease Liabilities
Operating Leases (1)
2019$92
2020127
2021104
202283
202376
After 2023280
Total lease payments762
Less: Interest99
Present value of lease liabilities$663
(1) Operating lease payments exclude $45 million of legally binding minimum lease payments for leases signed but not yet commenced. These leases will commence between 2019 and 2020 with lease terms of five years to 16 years.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

In accordance with the disclosure requirements for our adoption of ASU 2016-02, the Company is presenting the operating leases commitment table as of December 31, 2018. The following table is unchanged from the disclosure in Note 14 in the 2018 Form 10-K:
 Operating
Leases		SubleasesNet
2019$131
$4
$127
2020125
4
121
2021101
4
97
202279
2
77
202372
1
71
Thereafter282
—
282
Total$790
$15
$775


10.    Commitments and Contingencies

Loan Portfolio: CSB provides a co-branded loan origination program for CSB clients (the Program) with Quicken Loans, Inc. (Quicken Loans®). Pursuant to the Program, Quicken Loans originates and services First Mortgages and HELOCs for CSB clients. Under the Program, CSB purchases certain First Mortgages and HELOCs that are originated by Quicken Loans. CSB purchased First Mortgages of $491$411 million and $696$513 million during the thirdfirst quarters of 2019 and 2018, and 2017, respectively, and $1.6 billion and $2.0 billion during the first nine months of 2018 and 2017, respectively. SchwabCSB purchased HELOCs with commitments of $104$62 million and $115 million during the third quarters of 2018 and 2017, respectively, and $311 million and $344$107 million during the first nine monthsquarters of 20182019 and 2017,2018, respectively.
The Company’s commitments to extend credit on bank lines of credit and to purchase First Mortgages are as follows:
September 30, 2018 December 31, 2017
March 31, 2019 December 31, 2018
Commitments to extend credit related to unused HELOCs, PALs, and other lines of credit$11,028
 $10,060
$11,424
 $11,046
Commitments to purchase First Mortgage loans355
 308
390
 268
Total$11,383
 $10,368
$11,814
 $11,314
Guarantees and indemnifications: Schwab has clients that sell (i.e., write) listed option contracts that are cleared by the Options Clearing Corporation – a clearing house that establishes margin requirements on these transactions. We partially satisfy the margin requirements by arranging unsecured standby letter of credit agreements (LOCs), in favor of the Options Clearing Corporation, which are issued by several banks. At September 30, 2018,March 31, 2019, the aggregate face amount of these LOCs totaled $225 million. There were no funds drawn under any of these LOCs at September 30, 2018.March 31, 2019. In connection with its securities lending activities, Schwab is required to provide collateral to certain brokerage clients. The Company satisfies the collateral requirements by providing cash as collateral.
Schwab also provides guarantees to securities clearing houses and exchanges under standard membership agreements, which require members to guarantee the performance of other members. Under the agreements, if another member becomes unable to satisfy its obligations to the clearing houses and exchanges, other members would be required to meet shortfalls. Schwab’s liability under these arrangements is not quantifiable and may exceed the cash and securities it has posted as collateral. The

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

potential requirement for the Company to make payments under these arrangements is remote. Accordingly, no liability has been recognized for these guarantees.
Legal contingencies: Schwab is subject to claims and lawsuits in the ordinary course of business, including arbitrations, class actions and other litigation, some of which include claims for substantial or unspecified damages. The Company is also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies.

Predicting the outcome of a litigation or regulatory matter is inherently difficult, requiring significant judgment and evaluation of various factors, including the procedural status of the matter and any recent developments; prior experience and the experience of others in similar cases; available defenses, including potential opportunities to dispose of a case on the merits or procedural grounds before trial (e.g., motions to dismiss or for summary judgment); the progress of fact discovery; the opinions of counsel and experts regarding potential damages; and potential opportunities for settlement and the status of any settlement discussions; and potential insurance coverage and indemnification.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

discussions. It may not be reasonably possible to estimate a range of potential liability until the matter is closer to resolution – pending, for example, further proceedings, the outcome of key motions or appeals, or discussions among the parties. Numerous issues may have to be developed, such as discovery of important factual matters and determination of threshold legal issues, which may include novel or unsettled questions of law. Reserves are established or adjusted or further disclosure and estimates of potential loss are provided as the matter progresses and more information becomes available.

Schwab believes it has strong defenses in all significant matters currently pending and is contesting liability and any damages claimed. Nevertheless, some of these matters may result in adverse judgments or awards, including penalties, injunctions or other relief, and the Company may also determine to settle a matter because of the uncertainty and risks of litigation. Described below areis a certain mattersmatter in which there is a reasonable possibility that a material loss could be incurred or where the matter may otherwise be of significant interest to stockholders. Unless otherwise noted, the Company is unable to provide a reasonable estimate of any potential liability given the stage of proceedings in the matter. With respect to all other pending matters, based on current information and consultation with counsel, it does not appear reasonably possible that the outcome of any such matter would be material to the financial condition, operating results, or cash flows of the Company.

Total Bond Market Fund Litigation: On August 28, 2008, a class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of investors in the Schwab Total Bond Market Fund™. Plaintiff’s fourth amended complaint, filed on June 25, 2015, asserts state law breach of contract and fiduciary duty claims and names CSIM, Schwab Investments (registrant and issuer of the fund’s shares), and certain current and former fund trustees as defendants. Allegations include that the fund improperly deviated from its stated investment objectives by investing in collateralized mortgage obligations (CMOs) and investing more than 25% of fund assets in CMOs and mortgage-backed securities without obtaining a fundholder vote. Plaintiff seeks unspecified compensatory and rescission damages, unspecified equitable and injunctive relief, costs, and attorneys’ fees on behalf of a putative class of investors who held shares as of August 31, 2007, and a putative class of investors who purchased the shares between September 1, 2017 and February 27, 2009. In decisions issued October 6, 2015 and February 23, 2016, the court dismissed all claims with prejudice, holding that federal securities law precluded plaintiff from pursuing such claims as a class action. Plaintiff appealed to the Ninth Circuit, and on September 14, 2018, a 3-judge panel upheld dismissal, with leave for plaintiff to pursue the claims in its individual capacity. Action by plaintiff, including further appeal, remains pending.

Crago Order Routing Litigation: On July 13, 2016, a securities class action lawsuit was filed in the U.S. District Court for the Northern District of California on behalf of a putative class of customers executing equity orders through CS&Co. The lawsuit names CS&Co and CSC as defendants and alleges that an agreement under which CS&Co routed orders to UBS Securities LLC between July 13, 2011 and December 31, 2014 violated CS&Co’s duty to seek best execution. Plaintiffs seek unspecified damages, interest, injunctive and equitable relief, and attorneys’ fees and costs. After a first amended complaint was dismissed with leave to amend, plaintiffs filed a second amended complaint on August 14, 2017. Defendants again moved to dismiss, and in a decision issued December 5, 2017, the court denied the motion. Defendants have answered the complaint to deny all allegations, and intend to vigorously contest the lawsuit.




CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

10.11.     Financial Instruments Subject to Off-Balance Sheet Credit Risk

Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, it would be required to deposit cash and/or securities of an equal amount into its segregated reserve bank accounts in order to meet its segregated cash and investment requirement. Schwab’s resale agreements are not subject to master netting arrangements.

Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $338$281 million and $215$99 million at September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. All of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us and is subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the condensed consolidated balance sheets.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

The following table presents information about our resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities at September 30, 2018March 31, 2019 and December 31, 2017.2018:

       Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		         Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheets		  
 Gross
Assets/
Liabilities		 Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		 Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		 Counterparty
Offsetting		 Collateral Net
Amount		 Gross
Assets/
Liabilities		 Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheets		 Net Amounts
Presented in the
Condensed
Consolidated
Balance Sheets		 Counterparty
Offsetting		 Collateral Net
Amount
September 30, 2018            
March 31, 2019            
Assets                        
Resale agreements (1)
 $4,424
 $—
 $4,424
 $—
 $(4,424)
(2) 
 $—
 $6,861
 $—
 $6,861
 $—
 $(6,861)
(2) 
 $—
Securities borrowed (3)
 346
 —
 346
 (316) (30) —
 287
 —
 287
 (287) —
 —
Total $4,770
 $—
 $4,770
 $(316) $(4,454) $—
 $7,148
 $—
 $7,148
 $(287) $(6,861) $—
Liabilities                        
Securities loaned (4,5)
 $1,062
 $—
 $1,062
 $(316) $(652) $94
 $1,443
 $—
 $1,443
 $(287) $(1,058) $98
Total $1,062
 $—
 $1,062
 $(316) $(652) $94
 $1,443
 $—
 $1,443
 $(287) $(1,058) $98
                        
December 31, 2017            
December 31, 2018            
Assets                        
Resale agreements (1)
 $6,596
 $—
 $6,596
 $—
 $(6,596)
(2) 
 $—
 $7,195
 $—
 $7,195
 $—
 $(7,195)
(2) 
 $—
Securities borrowed (3)
 222
 —
 222
 (199) (22) 1
 101
 —
 101
 (98) (3) —
Total $6,818
 $—
 $6,818
 $(199) $(6,618) $1
 $7,296
 $—
 $7,296
 $(98) $(7,198) $—
Liabilities                        
Securities loaned (4,5)
 $966
 $—
 $966
 $(199) $(670) $97
 $1,184
 $—
 $1,184
 $(98) $(975) $111
Total $966
 $—
 $966
 $(199) $(670) $97
 $1,184
 $—
 $1,184
 $(98) $(975) $111
(1) Included in cash and investments segregated and on deposit for regulatory purposes in the condensed consolidated balance sheets.
(2) Actual collateral was greater than or equal to 102% of the related assets. At September 30, 2018March 31, 2019 and December 31, 2017,2018, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $4.5$7.0 billion and $6.7$7.4 billion, respectively.
(3) Included in receivables from brokers, dealers, and clearing organizations in the condensed consolidated balance sheets.
(4) Included in payables to brokers, dealers, and clearing organizations in the condensed consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at September 30, 2018March 31, 2019 and December 31, 2017.2018.
(5) Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, and the amounts that we had pledged:
 September 30, 2018 December 31, 2017 March 31, 2019 December 31, 2018
Fair value of client securities available to be pledgedFair value of client securities available to be pledged $28,806
 $25,905
Fair value of client securities available to be pledged $25,744
 $26,628
Fair value of client securities pledged for:Fair value of client securities pledged for:    Fair value of client securities pledged for:    
Fulfillment of requirements with the Options Clearing Corporation (1)
Fulfillment of requirements with the Options Clearing Corporation (1)
 3,036
 2,280
Fulfillment of requirements with the Options Clearing Corporation (1)
 1,618
 2,315
Fulfillment of client short salesFulfillment of client short sales 1,923
 2,011
Fulfillment of client short sales 1,861
 1,292
Securities lending to other broker-dealersSecurities lending to other broker-dealers 872
 784
Securities lending to other broker-dealers 1,178
 974
Total collateral pledgedTotal collateral pledged $5,831
 $5,075
Total collateral pledged $4,657
 $4,581
Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $88$161 million as of September 30, 2018March 31, 2019 and $78$97 million as of December 31, 2017.2018.
(1)  
Client securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.



11.CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

12.    Fair Values of Assets and Liabilities

Assets and liabilities measured at fair value on a recurring basis

Schwab’s assets and liabilities measured at fair value on a recurring basis includeinclude: certain cash equivalents, certain investments segregated and on deposit for regulatory purposes, other securities owned, and AFS securities. The Company uses the market approach to determine the fair value of assets and liabilities. When available, the Company uses quoted prices in active markets to measure the fair value of assets and liabilities. When utilizing market data and bid-ask spread, the Company uses the price within the bid-ask spread that best represents fair value. When quoted prices do not exist, the Company uses prices obtained from independent third-party pricing services to measure the fair value of investment assets. We generally obtain prices from at least three independent third-party pricing sources for assets recorded at fair value.

Our primary independent pricing service provides prices based on observable trades and discounted cash flows that incorporate observable information such as yields for similar types of securities (a benchmark interest rate plus observable spreads) and weighted-average maturity for the same or similar “to-be-issued” securities. We compare the prices obtained from the primary independent pricing service to the prices obtained from the additional independent pricing sourcesservices to determine if the price obtained from the primary independent pricing service is reasonable. Schwab does not adjust the prices received from independent third-party pricing services unless such prices are inconsistent with the definition of fair value and result in a material differencedifferences in the recorded amounts.amounts recorded.

For a description of the fair value hierarchy and Schwab’s fair value methodologies, including the use of independent third-party pricing services, see Note 2 in the 20172018 Form 10-K. We did not transfer any assets or liabilities between Level 1, Level 2, or Level 3 during the ninethree months ended September 30, 2018,March 31, 2019, or the year ended December 31, 2017.2018. In addition, the Company did not adjust prices received from the primary independent third-party pricing service at September 30, 2018March 31, 2019 or December 31, 2017.2018.




CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the fair value hierarchy for assets measured at fair value on a recurring basis. Liabilities recorded at fair value were not material, and therefore are not included in the following tables:
September 30, 2018Level 1 Level 2 Level 3 Balance at
Fair Value
March 31, 2019Level 1 Level 2 Level 3 Balance at
Fair Value
Cash equivalents:              
Money market funds$552
 $—
 $—
 $552
$650
 $—
 $—
 $650
Commercial paper—
 1,988
 —
 1,988
—
 4,265
 —
 4,265
Total cash equivalents552
 1,988
 —
 2,540
650
 4,265
 —
 4,915
Investments segregated and on deposit for regulatory purposes: 
  
  
         
Certificates of deposit—
 1,950
 —
 1,950
—
 1,147
 —
 1,147
U.S. Government securities—
 3,342
 —
 3,342
Total investments segregated and on deposit for regulatory purposes—
 1,950
 —
 1,950
—
 4,489
 —
 4,489
Other securities owned: 
  
  
         
Equity and bond mutual funds394
 —
 —
 394
422
 —
 —
 422
Schwab Funds® money market funds
21
 —
 —
 21
State and municipal debt obligations—
 44
 —
 44
—
 39
 —
 39
Equity, U.S. Government and corporate debt, and other securities3
 38
 —
 41
3
 44
 —
 47
Schwab Funds® money market funds
13
 —
 —
 13
Total other securities owned418
 82
 —
 500
438
 83
 —
 521
Available for sale securities: 
  
  
         
U.S. agency mortgage-backed securities—
 23,955
 —
 23,955
—
 31,092
 —
 31,092
U.S. Treasury securities—
 12,243
 —
 12,243
—
 10,275
 —
 10,275
Asset-backed securities—
 9,387
 —
 9,387
—
 8,439
 —
 8,439
Corporate debt securities—
 6,922
 —
 6,922
—
 6,532
 —
 6,532
Certificates of deposit—
 2,769
 —
 2,769
—
 3,146
 —
 3,146
U.S. agency notes—
 1,682
 —
 1,682
—
 249
 —
 249
Commercial paper—
 518
 —
 518
—
 209
 —
 209
Foreign government agency securities—
 48
 —
 48
—
 50
 —
 50
Non-agency commercial mortgage-backed securities—
 34
 —
 34
—
 13
 —
 13
Total available for sale securities—
 57,558
 —
 57,558
—
 60,005
 —
 60,005
Total$970
 $61,578
 $—
 $62,548
$1,088
 $68,842
 $—
 $69,930

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

December 31, 2017Level 1 Level 2 Level 3 Balance at
Fair Value
December 31, 2018Level 1 Level 2 Level 3 Balance at
Fair Value
Cash equivalents:              
Money market funds$2,727
 $—
 $—
 $2,727
$3,429
 $—
 $—
 $3,429
Commercial paper—
 4,863
 —
 4,863
Total cash equivalents2,727
 —
 —
 2,727
3,429
 4,863
 —
 8,292
Investments segregated and on deposit for regulatory purposes:              
Certificates of deposit—
 2,198
 —
 2,198
—
 1,396
 —
 1,396
U.S. Government securities—
 3,658
 —
 3,658
—
 3,275
 —
 3,275
Total investments segregated and on deposit for regulatory purposes—
 5,856
 —
 5,856
—
 4,671
 —
 4,671
Other securities owned: 
             
Equity and bond mutual funds318
 —
 —
 318
441
 —
 —
 441
Schwab Funds® money market funds
135
 —
 —
 135
State and municipal debt obligations—
 52
 —
 52
—
 39
 —
 39
Equity, U.S. Government and corporate debt, and other securities2
 32
 —
 34
3
 30
 —
 33
Schwab Funds® money market funds
26
 —
 —
 26
Total other securities owned455
 84
 —
 539
470
 69
 —
 539
Available for sale securities:              
U.S. agency mortgage-backed securities—
 20,929
 —
 20,929
—
 25,556
 —
 25,556
U.S. Treasury securities—
 9,500
 —
 9,500
—
 18,302
 —
 18,302
Asset-backed securities—
 9,047
 —
 9,047
—
 10,085
 —
 10,085
Corporate debt securities—
 6,169
 —
 6,169
—
 7,467
 —
 7,467
Certificates of deposit—
 2,041
 —
 2,041
—
 3,685
 —
 3,685
U.S. agency notes—
 1,906
 —
 1,906
—
 898
 —
 898
Commercial paper—
 313
 —
 313
—
 522
 —
 522
Foreign government agency securities—
 50
 —
 50
—
 49
 —
 49
Non-agency commercial mortgage-backed securities—
 40
 —
 40
—
 14
 —
 14
Total available for sale securities—
 49,995
 —
 49,995
—
 66,578
 —
 66,578
Total$3,182
 $55,935
 $—
 $59,117
$3,899
 $76,181
 $—
 $80,080
 

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Fair Value of Other Financial Instruments
The following tables present the fair value hierarchy for other financial instruments:
September 30, 2018Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
March 31, 2019Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets                  
Cash and cash equivalents$19,290
 $—
 $19,290
 $—
 $19,290
$27,643
 $—
 $27,643
 $—
 $27,643
Cash and investments segregated and on deposit for
regulatory purposes		6,526
 —
 6,526
 —
 6,526
9,421
 —
 9,421
 —
 9,421
Receivables from brokers, dealers, and clearing
organizations		798
 —
 798
 —
 798
616
 —
 616
 —
 616
Receivables from brokerage clients — net22,402
 —
 22,402
 —
 22,402
20,519
 —
 20,519
 —
 20,519
Held to maturity securities:                  
U.S. agency mortgage-backed securities113,453
 —
 109,996
 —
 109,996
106,532
 —
 105,922
 —
 105,922
Asset-backed securities17,964
 —
 18,074
 —
 18,074
18,465
 —
 18,505
 —
 18,505
Corporate debt securities4,578
 —
 4,531
 —
 4,531
4,479
 —
 4,477
 —
 4,477
U.S. state and municipal securities1,330
 —
 1,329
 —
 1,329
1,313
 —
 1,382
 —
 1,382
Non-agency commercial mortgage-backed securities1,149
 —
 1,125
 —
 1,125
1,145
 —
 1,150
 —
 1,150
U.S. Treasury securities223
 —
 212
 —
 212
223
 —
 221
 —
 221
Certificates of deposit200
 —
 201
 —
 201
200
 —
 201
 —
 201
Foreign government agency securities50
 —
 48
 —
 48
50
 —
 49
 —
 49
Other5
 —
 5
 —
 5
13
 —
 13
 —
 13
Total held to maturity securities138,952
 —
 135,521
 —
 135,521
132,420
 —
 131,920
 —
 131,920
Bank loans — net:                  
First Mortgages10,239
 —
 9,963
 —
 9,963
10,376
 —
 10,283
 —
 10,283
HELOCs1,595
 —
 1,664
 —
 1,664
1,389
 —
 1,471
 —
 1,471
Pledged asset lines4,556
 —
 4,556
 —
 4,556
4,576
 —
 4,576
 —
 4,576
Other174
 —
 174
 —
 174
169
 —
 169
 —
 169
Total bank loans — net16,564
 —
 16,357
 —
 16,357
16,510
 —
 16,499
 —
 16,499
Other assets463
 —
 463
 —
 463
535
 —
 535
 —
 535
Total$204,995
 $—
 $201,357
 $—
 $201,357
$207,664
 $—
 $207,153
 $—
 $207,153
Liabilities                  
Bank deposits$213,408
 $—
 $213,408
 $—
 $213,408
$219,454
 $—
 $219,454
 $—
 $219,454
Payables to brokers, dealers, and clearing organizations1,522
 —
 1,522
 —
 1,522
1,602
 —
 1,602
 —
 1,602
Payables to brokerage clients27,851
 —
 27,851
 —
 27,851
29,701
 —
 29,701
 —
 29,701
Accrued expenses and other liabilities1,177
 —
 1,177
 —
 1,177
1,330
 —
 1,330
 —
 1,330
Long-term debt5,790
 —
 5,687
 —
 5,687
6,829
 —
 6,959
 —
 6,959
Total$249,748
 $—
 $249,645
 $—
 $249,645
$258,916
 $—
 $259,046
 $—
 $259,046


CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

December 31, 2017Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
December 31, 2018Carrying
Amount		 Level 1 Level 2 Level 3 Balance at
Fair Value
Assets                  
Cash and cash equivalents$11,490
 $—
 $11,490
 $—
 $11,490
$19,646
 $—
 $19,646
 $—
 $19,646
Cash and investments segregated and on deposit for
regulatory purposes		9,277
 —
 9,277
 —
 9,277
8,886
 —
 8,886
 —
 8,886
Receivables from brokers, dealers, and clearing
organizations		649
 —
 649
 —
 649
553
 —
 553
 —
 553
Receivables from brokerage clients — net20,568
 —
 20,568
 —
 20,568
21,641
 —
 21,641
 —
 21,641
Held to maturity securities:                  
U.S. agency mortgage-backed securities101,197
 —
 100,453
 —
 100,453
118,064
 —
 116,093
 —
 116,093
Asset-backed securities12,937
 —
 13,062
 —
 13,062
18,502
 —
 18,546
 —
 18,546
Corporate debt securities4,078
 —
 4,086
 —
 4,086
4,477
 —
 4,432
 —
 4,432
U.S. state and municipal securities1,247
 —
 1,304
 —
 1,304
1,327
 —
 1,348
 —
 1,348
Non-agency commercial mortgage-backed securities994
 —
 999
 —
 999
1,156
 —
 1,142
 —
 1,142
U.S. Treasury securities223
 —
 220
 —
 220
223
 —
 217
 —
 217
Certificates of deposit200
 —
 200
 —
 200
200
 —
 201
 —
 201
Foreign government agency securities50
 —
 49
 —
 49
50
 —
 49
 —
 49
Other10
 —
 10
 —
 10
Total held to maturity securities120,926
 —
 120,373
 —
 120,373
144,009
 —
 142,038
 —
 142,038
Bank loans — net:                  
First Mortgages10,000
 —
 9,917
 —
 9,917
10,370
 —
 10,193
 —
 10,193
HELOCs1,935
 —
 2,025
 —
 2,025
1,500
 —
 1,583
 —
 1,583
Pledged asset lines4,369
 —
 4,369
 —
 4,369
4,561
 —
 4,561
 —
 4,561
Other174
 —
 174
 —
 174
178
 —
 178
 —
 178
Total bank loans — net16,478
 —
 16,485
 —
 16,485
16,609
 —
 16,515
 —
 16,515
Other assets781
 —
 781
 —
 781
460
 —
 460
 —
 460
Total$180,169
 $—
 $179,623
 $—
 $179,623
$211,804
 $—
 $209,739
 $—
 $209,739
Liabilities                  
Bank deposits$169,656
 $—
 $169,656
 $—
 $169,656
$231,423
 $—
 $231,423
 $—
 $231,423
Payables to brokers, dealers, and clearing organizations1,287
 —
 1,287
 —
 1,287
1,831
 —
 1,831
 —
 1,831
Payables to brokerage clients31,243
 —
 31,243
 —
 31,243
32,726
 —
 32,726
 —
 32,726
Accrued expenses and other liabilities1,463
 —
 1,463
 —
 1,463
1,370
 —
 1,370
 —
 1,370
Short-term borrowings15,000
 —
 15,000
 —
 15,000
Long-term debt4,753
 —
 4,811
 —
 4,811
6,878
 —
 6,827
 —
 6,827
Total$223,402
 $—
 $223,460
 $—
 $223,460
$274,228
 $—
 $274,177
 $—
 $274,177



CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

12.13.    Stockholders’ Equity
On January 30, 2019, CSC publicly announced that its Board of Directors authorized a new Share Repurchase Program to repurchase up to $4.0 billion of common stock. The share repurchase authorization does not have an expiration date. There were no repurchases of CSC’s common stock under this authorization during the three months ended March 31, 2019.

The Company’s preferred stock issued and outstanding is as follows:

 Liquidation Preference Per Share  Dividend Rate in Effect at September 30, 2018Earliest Redemption DateDate at Which Dividend Rate Becomes FloatingFloating Annual Rate of Three-Month LIBOR plus: Liquidation Preference Per Share  Dividend Rate in Effect at March 31, 2019Earliest Redemption DateDate at Which Dividend Rate Becomes FloatingFloating Annual Rate of Three-Month LIBOR plus:
Shares Issued and Outstanding (In thousands) atCarrying Value at Shares Issued and Outstanding (In thousands) atCarrying Value at 
September 30, 2018 (1)
December 31, 2017 (1)
September 30, 2018December 31, 2017Issue Date
March 31, 2019 (1)
December 31, 2018 (1)
March 31, 2019December 31, 2018Issue Date
Fixed-rate:            
Series C600
600
$1,000
$585
$585
08/03/156.000%12/01/20N/AN/A
600
600
$1,000
$585
$585
08/03/156.000%12/01/20N/AN/A
Series D750
750
1,000
728
728
03/07/165.950%06/01/21N/AN/A
750
750
1,000
728
728
03/07/165.950%06/01/21N/AN/A
Fixed-to-floating-rate:            
Series A400
400
1,000
397
397
01/26/127.000%02/01/224.820%400
400
1,000
397
397
01/26/127.000%02/01/224.820%
Series E6
6
100,000
591
591
10/31/164.625%03/01/223.315%6
6
100,000
591
591
10/31/164.625%03/01/223.315%
Series F5
5
100,000
492
492
10/31/175.000%12/01/2712/01/272.575%5
5
100,000
492
492
10/31/175.000%12/01/2712/01/272.575%
Total preferred stock1,761
1,761


$2,793
$2,793
     1,761
1,761


$2,793
$2,793
     
(1) Represented by depositary shares, except for Series A.
N/A Not applicable.


13.    Accumulated Other Comprehensive Income
Accumulated other comprehensive income (AOCI) represents cumulative gains and losses that are not reflected in earnings. The components of other comprehensive income (loss) are as follows:
 2018 2017
Three Months Ended September 30,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Change in net unrealized gain (loss) on available for sale securities: 
  
  
  
  
  
Net unrealized gain (loss)$(43) $11
 $(32) $—
 $—
 $—
Change in net unrealized gain (loss) on held to maturity securities:           
Amortization of amounts previously recorded upon transfer from available for sale8
 (2) 6
 10
 (4) 6
Other comprehensive income (loss)$(35) $9
 $(26) $10
 $(4) $6

 2018 2017
Nine Months Ended September 30,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Change in net unrealized gain (loss) on available for sale securities: 
  
  
  
  
  
Net unrealized gain (loss)$(184) $45
 $(139) $81
 $(30) $51
Reclassification of net unrealized loss on securities transferred to held to maturity (1)
—
 —
 —
 227
 (85) 142
Other reclassifications included in other revenue—
 —
 —
 (7) 3
 (4)
Change in net unrealized gain (loss) on held to maturity securities:           
Reclassification of net unrealized loss on securities transferred from available for sale (1)
—
 —
 —
 (227) 85
 (142)
Amortization of amounts previously recorded upon transfer from available for sale26
 (6) 20
 21
 (9) 12
Other—
 —
 —
 (3) 1
 (2)
Other comprehensive income (loss)$(158) $39
 $(119) $92
 $(35) $57
(1) See Note 5 in the 2017 10-K for discussion of the transfer of securities from the AFS category to the HTM category during the first quarter of 2017.

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

14.    Accumulated Other Comprehensive Income
The components of other comprehensive income (loss) are as follows:
 2019 2018
Three Months Ended March 31,Before
Tax		 Tax
Effect		 Net of
Tax		 Before
Tax		 Tax
Effect		 Net of
Tax
Change in net unrealized gain (loss) on available for sale securities:       
  
  
Net unrealized gain (loss)$227
 $(54) $173
 $(108) $26
 $(82)
Other reclassifications included in other revenue(1) —
 (1) —
 —
 —
Amortization of amounts previously recorded upon transfer to held to maturity from
available for sale		12
 (3) 9
 9
 (2) 7
Other comprehensive income (loss)$238
 $(57) $181
 $(99) $24
 $(75)
AOCI balances are as follows:

 Total Accumulated Other Comprehensive IncomeTotal AOCI
Balance at December 31, 2016 $(163)
Available for sale securities:  
Net unrealized gain (loss) 51
Reclassification of net unrealized loss on securities transferred to held to maturity 142
Other reclassifications included in other revenue (4)
Held to maturity securities:  
Reclassification of net unrealized loss on securities transferred from available for sale (142)
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 12
Other (2)
Balance at September 30, 2017 $(106)
  
Balance at December 31, 2017 $(152)$(152)
Adoption of accounting standards (Note 2) (33)
Adoption of accounting standards(33)
Available for sale securities:   
Net unrealized gain (loss) (139)(82)
Held to maturity securities:   
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale 20
7
Balance at September 30, 2018 $(304)
Balance at March 31, 2018(260)
 
Balance at December 31, 2018(252)
Available for sale securities: 
Net unrealized gain (loss), excluding transfers to available for sale from held to maturity154
Net unrealized gain on securities transferred to available for sale from held to maturity (1)
19
Other reclassifications included in other revenue(1)
Held to maturity securities: 
Amortization of amounts previously recorded upon transfer to held to maturity from available for sale9
Balance at March 31, 2019$(71)


14.    Taxes on Income
On December 22, 2017, the Tax Act was signed into law. Among other things, the Tax Act lowered the federal corporate income tax rate from 35% to 21%, effective for tax years including or commencing January 1, 2018. Schwab’s effective tax rate for the three and nine months ended September 30, 2018 was 24.3% and 23.3%, respectively, compared to 34.6% and 34.9% for the three and nine months ended September 30, 2017, respectively, resulting from the impact(1) As part of the Tax Actadoption of 2017.

Also as a result of the Tax Act, Schwab recognized a $46 million one-time non-cash charge to taxes on incomeASU 2017-12, in the fourthfirst quarter of 2017 associated with2019, the remeasurementCompany made a one-time election to transfer a portion of its HTM securities to AFS. The transfer resulted in a net deferredof tax assetsincrease to AOCI of $19 million. See Notes 2 and other tax adjustments related4 for additional discussion on the transfer of HTM securities to the Tax Act. While we were able to make a reasonable estimate of the impact of the reduction in the corporate tax rate in the fourth quarter of 2017, our accounting for various elements of the Tax Act may be affected by clarifications of the Tax Act and other related analysis.

During the second quarter of 2018, Schwab concluded its analysis of the effect of bonus depreciation that allows for immediate expensing of qualified property related to the Tax Act. The impact of the true-up adjustment from this analysis was determined to be immaterial. We are continuing to gather additional information to complete the accounting for the remaining estimated items, including the state tax effect of adjustments made to federal temporary differences, and expect to complete the accounting within the prescribed measurement period. As such, the impact of the Tax Act is an estimate pending further information and the analysis noted.

As of January 1, 2018, Schwab adopted new accounting guidance that decreased AOCI and increased retained earnings by $33 million for the reclassification of certain impacts of the Tax Act as described in Note 2.AFS.



CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

15.    Earnings Per Common Share

EPS under the basic and diluted computations is as follows:
  Three Months Ended
September 30,		 Nine Months Ended
September 30,
  2018 2017 2018 2017
Net income $923
 $618
 $2,572
 $1,757
Preferred stock dividends and other (1)
 (38) (43) (128) (127)
Net income available to common stockholders $885
 $575
 $2,444
 $1,630
Weighted-average common shares outstanding — basic 1,351
 1,339
 1,349
 1,338
Common stock equivalent shares related to stock incentive plans 13
 14
 14
 14
Weighted-average common shares outstanding — diluted (2)
 1,364
 1,353
 1,363
 1,352
Basic EPS $.66
 $.43
 $1.81
 $1.22
Diluted EPS $.65
 $.42
 $1.79
 $1.21
(1) Includes preferred stock dividends and undistributed earnings and dividends allocated to non-vested restricted stock units.
(2) Antidilutive stock options and restricted stock units excluded from the calculation of diluted EPS totaled 11 million and 9 million shares for the third quarters of 2018 and 2017, respectively, and 12 million and 10 million shares for the first nine months of 2018 and 2017, respectively.



CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

16.    Regulatory Requirements

At September 30, 2018, SchwabMarch 31, 2019, CSC and CSB met all of their respective capital requirements. The regulatory capital and ratios for CSC (consolidated) and CSB are as follows:

 Actual Minimum to be
Well Capitalized		 Minimum Capital Requirement
September 30, 2018 Amount Ratio Amount Ratio Amount Ratio
CSC            
Common Equity Tier 1 Risk-Based Capital $17,025
 19.6% N/A
   $3,907
 4.5%
Tier 1 Risk-Based Capital 19,818
 22.8% N/A
   5,210
 6.0%
Total Risk-Based Capital 19,846
 22.9% N/A
   6,946
 8.0%
Tier 1 Leverage 19,818
 7.5% N/A
   10,622
 4.0%
CSB            
Common Equity Tier 1 Risk-Based Capital $15,164
 20.2% $4,890
 6.5% $3,385
 4.5%
Tier 1 Risk-Based Capital 15,164
 20.2% 6,018
 8.0% 4,513
 6.0%
Total Risk-Based Capital 15,191
 20.2% 7,522
 10.0% 6,018
 8.0%
Tier 1 Leverage 15,164
 7.1% 10,668
 5.0% 8,534
 4.0%
             
December 31, 2017            
CSC            
Common Equity Tier 1 Risk-Based Capital $14,630
 19.3% N/A
   $3,414
 4.5%
Tier 1 Risk-Based Capital 17,423
 23.0% N/A
   4,552
 6.0%
Total Risk-Based Capital 17,452
 23.0% N/A
   6,069
 8.0%
Tier 1 Leverage 17,423
 7.6% N/A
   9,218
 4.0%
CSB            
Common Equity Tier 1 Risk-Based Capital $13,355
 20.1% $4,324
 6.5% $2,993
 4.5%
Tier 1 Risk-Based Capital 13,355
 20.1% 5,321
 8.0% 3,991
 6.0%
Total Risk-Based Capital 13,382
 20.1% 6,652
 10.0% 5,321
 8.0%
Tier 1 Leverage 13,355
 7.1% 9,462
 5.0% 7,569
 4.0%

 
Actual (1)
 Minimum to be
Well Capitalized		 Minimum Capital Requirement
March 31, 2019 Amount Ratio Amount Ratio Amount 
Ratio (2)
CSC            
Common Equity Tier 1 Risk-Based Capital $17,523
 19.8% N/A
   $3,976
 4.5%
Tier 1 Risk-Based Capital 20,316
 23.0% N/A
   5,302
 6.0%
Total Risk-Based Capital 20,338
 23.0% N/A
   7,069
 8.0%
Tier 1 Leverage 20,316
 7.2% N/A
   11,263
 4.0%
Supplementary Leverage Ratio (1)
 20,316
 7.1% N/A
   8,631
 3.0%
CSB            
Common Equity Tier 1 Risk-Based Capital $15,730
 20.7% $4,947
 6.5% $3,425
 4.5%
Tier 1 Risk-Based Capital 15,730
 20.7% 6,089
 8.0% 4,567
 6.0%
Total Risk-Based Capital 15,751
 20.7% 7,611
 10.0% 6,089
 8.0%
Tier 1 Leverage 15,730
 7.0% 11,168
 5.0% 8,934
 4.0%
Supplementary Leverage Ratio (1)
 15,730
 6.9% N/A
 N/A
 6,879
 3.0%
             
December 31, 2018            
CSC            
Common Equity Tier 1 Risk-Based Capital $16,813
 17.6% N/A
   $4,295
 4.5%
Tier 1 Risk-Based Capital 19,606
 20.5% N/A
   5,726
 6.0%
Total Risk-Based Capital 19,628
 20.6% N/A
   7,635
 8.0%
Tier 1 Leverage 19,606
 7.1% N/A
   11,058
 4.0%
CSB            
Common Equity Tier 1 Risk-Based Capital $15,832
 19.7% $5,233
 6.5% $3,623
 4.5%
Tier 1 Risk-Based Capital 15,832
 19.7% 6,441
 8.0% 4,831
 6.0%
Total Risk-Based Capital 15,853
 19.7% 8,051
 10.0% 6,441
 8.0%
Tier 1 Leverage 15,832
 7.2% 11,044
 5.0% 8,836
 4.0%
(1) Beginning in 2019, CSC and CSB are subject to the “advanced approaches” framework under the Basel III capital rule. As a result, we are now required to include all components of AOCI in regulatory capital and report our supplementary leverage ratio, which is calculated as Tier 1 capital divided by total leverage exposure. Total leverage exposure includes all on-balance sheet assets and certain off-balance sheet exposures, including unused commitments. Prior to 2019, CSC and CSB elected to opt-out of the requirement to include most components of AOCI in Common Equity Tier 1 Capital; the amounts and ratios for December 31, 2018 are presented on this basis.
(2) Under the Basel III capital rule, CSC and CSB are also required to maintain a capital conservation buffer and, beginning in 2019, a countercyclical capital buffer above the regulatory minimum risk-based capital ratios. The capital conservation buffer became 2.5% on January 1, 2019 (1.875% at December 31, 2018). At March 31, 2019, the countercyclical capital buffer was zero percent. If either buffer falls below the minimum requirement, the Company would be subject to limits on capital distributions and discretionary bonus payments to executive officers. At March 31, 2019 the minimum capital requirement plus capital conservation buffer and countercyclical capital buffer for Common Equity Tier 1 Risk-Based Capital, Tier 1 Risk-Based Capital, and Total Risk-Based Capital ratios were 7.0%, 8.5%, and 10.5%, respectively.
N/A Not applicable.

At September 30, 2018,Based on its regulatory capital ratios at March 31, 2019, CSB is considered well capitalized (the highest category) under its respective regulatory capital rules. At September 30, 2018, CSC’s andThere are no conditions or events since March 31, 2019 that management believes have changed CSB’s capital levels exceeded the fully implemented capital conservation buffer requirement. Certain events, such as growth in bank deposits and regulatory discretion, could adversely affect our ability to meet future capital requirements.category.

In late 2017, Schwab acquired a federal savings bank charter and changed the name towhich is now called Charles Schwab Signature Bank (CSSB).Premier Bank. At September 30, 2018, CSSB’sMarch 31, 2019, the balance sheet of Charles Schwab Premier Bank consisted primarily of investment securities, withand held total assets of $13.1$14.4 billion. CSSBCharles Schwab Premier Bank is subject to similar regulatory guidelines and requirements, and seeks to maintain a Tier 1 Leverage Ratio similar to CSB.
Net capital and net capital requirements for CS&Co are as follows:
  September 30, 2018 December 31, 2017
Net Capital $2,280
 $2,118
Minimum net capital required 0.250
 0.250
2% of aggregate debit balances 476
 435
Net Capital in excess of required net capital $1,804
 $1,683

CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

Net capital and net capital requirements for CS&Co are as follows:
  March 31, 2019 December 31, 2018
Net Capital $2,370
 $2,304
Minimum net capital required 0.250
 0.250
2% of aggregate debit balances 411
 436
Net Capital in excess of required net capital $1,959
 $1,868
In accordance with the SEC Customer Protection Rule, CS&Co had portions of its cash and investments segregated for the exclusive benefit of clients at September 30, 2018.March 31, 2019. The SEC Customer Protection Rule requires broker-dealers to segregate client fully paidfully-paid securities and cash balances not collateralizing margin positions and not swept to money market funds or bank deposit accounts. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit. Cash and cash equivalents included in cash and investments segregated and on deposit for regulatory purposes are presented as part of Schwab’s cash balances in the consolidated statements of cash flows.


17.16.    Segment Information
Schwab’s two reportable segments are Investor Services and Advisor Services. Schwab structures the operating segments according to its clients and the services provided to those clients. The Investor Services segment provides retail brokerage and banking services to individual investors, and retirement plan services, as well as other corporate brokerage services, to businesses and their employees. The Advisor Services segment provides custodial, trading, banking, and support services, as well as retirement business services, to independent RIAs, independent retirement advisors, and recordkeepers. Revenues and expenses are allocated to the two segments based on which segment services the client.
Management evaluates the performance of the segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. There are no revenues from transactions between the segments.
Financial information for the segments is presented in the following tables:table:
  Investor Services Advisor Services Total
Three Months Ended September 30, 2018 2017 2018 2017 2018 2017
Net Revenues            
Net interest revenue $1,138
 $818
 $389
 $264
 $1,527
 $1,082
Asset management and administration fees 565
 595
 244
 266
 809
 861
Trading revenue 112
 94
 64
 57
 176
 151
Other 53
 54
 14
 17
 67
 71
Total net revenues 1,868
 1,561
 711
 604
 2,579
 2,165
Expenses Excluding Interest 1,015
 918
 345
 302
 1,360
 1,220
Income before taxes on income $853
 $643
 $366
 $302
 $1,219
 $945
 Investor Services Advisor Services Total Investor Services Advisor Services Total
Nine Months Ended September 30, 2018 2017 2018 2017 2018 2017
Three Months Ended March 31, 2019 2018 2019 2018 2019 2018
Net Revenues                        
Net interest revenue $3,158
 $2,366
 $1,039
 $769
 $4,197
 $3,135
 $1,195
 $957
 $486
 $306
 $1,681
 $1,263
Asset management and administration fees 1,727
 1,743
 747
 786
 2,474
 2,529
 533
 593
 222
 258
 755
 851
Trading revenue 354
 311
 203
 189
 557
 500
 111
 127
 74
 74
 185
 201
Other 182
 159
 53
 53
 235
 212
 72
 64
 30
 19
 102
 83
Total net revenues 5,421
 4,579
 2,042
 1,797
 7,463
 6,376
 1,911
 1,741
 812
 657
 2,723
 2,398
Expenses Excluding Interest 3,069
 2,762
 1,042
 917
 4,111
 3,679
 1,062
 1,042
 397
 354
 1,459
 1,396
Income before taxes on income $2,352
 $1,817
 $1,000
 $880
 $3,352
 $2,697
 $849
 $699
 $415
 $303
 $1,264
 $1,002



CHARLES SCHWAB CORPORATION
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Ratios, or as Noted)
(Unaudited)

18.    Subsequent Events
On October 25, 2018, CSC’s Board of Directors terminated the existing two share repurchase authorizations and replaced them with a new authorization to repurchase up to a total of $1.0 billion of common stock.

On October 31, 2018, CSC issued $500 million aggregate principal amount of Senior Notes that mature in 2024 and $600 million aggregate principal amount of Senior Notes that mature in 2029 under its universal shelf registration statement on file with the SEC. The Senior Notes due 2024 have a fixed interest rate of 3.550% with interest payable semi-annually. The Senior Notes due 2029 have a fixed interest rate of 4.000% with interest payable semi-annually.


THE CHARLES SCHWAB CORPORATION



Item 4.     Controls and Procedures
Evaluation of disclosure controls and procedures: The management of the Company, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of September 30, 2018.March 31, 2019. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2018.March 31, 2019.
Changes in internal control over financial reporting: No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) was identified during the quarter ended September 30, 2018,March 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.



THE CHARLES SCHWAB CORPORATION



PART  II  -  OTHER  INFORMATION


Item 1.     Legal Proceedings
For a discussion of legal proceedings, see Item 1 – Note 9.10.

Item 1A.     Risk Factors

During the first ninethree months of 2018,2019, there have been no material changes to the risk factors in Part I – Item 1A – Risk Factors in the 20172018 Form 10-K.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
At SeptemberOn January 30, 2018, approximately $596 million of future share repurchases remained authorized under the Share Repurchase Program. There were two authorizations under this program by CSC’s Board of Directors, each covering up to $500 million of common stock, that were publicly announced by CSC on April 25, 2007 and March 13, 2008. There were no share repurchases during the third quarter of 2018. On October 25, 2018,2019, CSC publicly announced that its Board of Directors terminatedauthorized the existing authorizations and replaced them with a new authorization to repurchase of up to a total of $1.0$4.0 billion of common stock. The authorization does not have an expiration date. There were no share repurchases under this authorization during the first quarter of 2019.


THE CHARLES SCHWAB CORPORATION




The following table summarizes purchases made by or on behalf of CSC of its common stock for each calendar month in the thirdfirst quarter of 2018:
2019 (in millions, except number of shares, which are in thousands, and per share amounts):
Month Total number of shares purchased (in thousands) Average price paid per shares Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet Be Purchased Under the Publicly Announced Program
July:    
January:        
Share repurchase program —
 $—
 $—
 $4,000
Employee transactions (1)
 3
 $51.24
 3
 $41.59
 N/A
 N/A
August:    
February:        
Share repurchase program —
 $—
 $—
 $4,000
Employee transactions (1)
 5
 $50.57
 3
 $47.12
 N/A
 N/A
September:    
March:        
Share repurchase program —
 $—
 $—
 $4,000
Employee transactions (1)
 5
 $50.99
 209
 $46.76
 N/A
 N/A
Total:            
Share repurchase program —
 $—
 $—
 $4,000
Employee Transactions (1)
 13
 $50.89
 215
 $46.70
 N/A
 N/A
(1) Includes restricted shares withheld (under the terms of grants under employee stock incentive plans) to offset tax withholding obligations that occur upon vesting and release of restricted shares. The Company may receive shares delivered or attested to pay the exercise price and/or to satisfy tax withholding obligations by employees who exercise stock options granted under employee stock incentive plans, which are commonly referred to as stock swap exercises.
N/A Not applicable.




THE CHARLES SCHWAB CORPORATION



Item 3.     Defaults Upon Senior Securities

None.

Item 4.     Mine Safety Disclosures

Not applicable.

Item 5.     Other Information
None.


THE CHARLES SCHWAB CORPORATION



Item 6.     Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
Exhibit
Number
Exhibit
Number
Exhibit 
Exhibit
Number
Exhibit 
  
12.1
Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
 
     
31.131.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 31.1
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
     
31.231.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 31.2
Certification Pursuant to Rule 13a-14(a)/15d-14(a), As Adopted Pursuant to Section 302 of The Sarbanes-Oxley Act of 2002.
 
     
32.132.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
     
32.232.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
(1)
     
101.INS101.INSXBRL Instance Document(2)101.INSXBRL Instance Document(2)
     
101.SCH101.SCHXBRL Taxonomy Extension Schema(2)101.SCHXBRL Taxonomy Extension Schema(2)
     
101.CAL101.CALXBRL Taxonomy Extension Calculation(2)101.CALXBRL Taxonomy Extension Calculation(2)
     
101.DEF101.DEFXBRL Extension Definition(2)101.DEFXBRL Extension Definition(2)
     
101.LAB101.LABXBRL Taxonomy Extension Label(2)101.LABXBRL Taxonomy Extension Label(2)
     
101.PRE101.PREXBRL Taxonomy Extension Presentation(2)101.PREXBRL Taxonomy Extension Presentation(2)
     
(1)Furnished as an exhibit to this Quarterly Report on Form 10-Q. )Furnished as an exhibit to this Quarterly Report on Form 10-Q. 
     
(2)Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements. )
Attached as Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2019 are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements.
 




THE CHARLES SCHWAB CORPORATION




SIGNATURE


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


   THE CHARLES SCHWAB CORPORATION
   (Registrant)
    
    
    
Date:November 7, 2018May 8, 2019 /s/ Peter Crawford
   Peter Crawford
   Executive Vice President and Chief Financial Officer


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